Friday, February 29, 2008

The Dollar's Plight and Status

There is a fascinating story in today's WSJ today about the dollar. It mentions the current nosedive is causing a ton of problems for countries around the world. But it also mentions the dollar is very entrenched in global finance which means changing dominant currencies (to the euro, for example) would be extremely difficult.

Beaten down by fears of a U.S. recession, the dollar is falling with new speed -- creating severe challenges not just for the U.S., but also for sugar traders in Brazil, central bankers in the Persian Gulf and a host of others.


Yet for all of the gloom, the world is unready to let go of America's unloved dollar. Akin to the way Microsoft's often-criticized Windows operating system remains indispensable to the majority of computer users, the dollar remains the common language of finance, the medium of exchange in everything from sugar to wheat to oil.

Shaking the dollar loose from that place would require a vast reworking of the global financial system that few parties seem prepared to confront. It is far from certain that the dollar will continue to decline. But if it does, businesses and policy makers around the world could be wrestling with the problems created by their dependence on it for many years.

I love the Microsoft comparison -- that just makes me feel warm and fuzzy all over. But I think it is a very apt comparison.

The whole article is a great read.