Beginning of the end of dollar's supremacy?

The coming year should provide new impetus to a long-debated reform of the international monetary system that could spell the end of the dollar's status as the world's favourite currency. Talk of the greenback's demise is anything but new. Back in September 2007, former US Federal Reserve Chairman Alan Greenspan said the euro could eventually replace the dollar as the primary global reserve currency.
And calls for a new Bretton Woods set of rules for commercial and financial relations, which have sanctioned the dollar's current supremacy, have been heard at least since the 1970s. But the persistent weakness of the US economy in the aftermath of the 2008 financial meltdown, and the consequent decision by the Federal Reserve to flood international money markets with cheap dollars to buy government bonds (a move known as quantitative easing"), has rekindled the debate.
Meanwhile, China's reluctance to let its renminbi appreciate in line with its huge trade surplus has further strengthened the view that the current system is no longer sustainable. We have to update the international monetary system for the 21st century," said French President Nicolas Sarkozy, whose country has assumed the rotating presidency of the Group of 20 (G20), after a meeting of the world's most powerful economies in Seoul, on November 12.
For much of 2010, tension on the money markets fuelled a simmering currency war that pitted Europeans against Americans, Americans against Chinese, Chinese against rival Asian players, and left other emerging powers, such as Brazil, caught in the crossfire.
It is no accident that one of the first to speak openly of a currency war," in October, was Brazilian Finance Minister Guido Mantega, as his country experienced a massive influx of capital from investors seeking higher returns than those available from the United States.
Such a shift has provoked a surge in the value of Brazil's real, up more than 30 per cent against the dollar since the beginning of 2009, making Brazilian exports much more expensive. Under the current arrangement, more than 80 per cent of foreign exchange transactions are carried out in dollars, despite the US economy accounting for less than a quarter of the global economy.
At the same time, more than 60 per cent of international reserves are dollar-denominated, making US economic policy disproportionately influential. No wonder the world was alarmed when the Democratic Party of US President Barack Obama lost control of Congress in the country's midterm elections.
In Seoul, G20 leaders vowed to maintain current account imbalances at sustainable levels" and move toward more market-determined exchange rate systems" that reflect underlying economic fundamentals." Common language about the desire to promote a stable and well functioning international monetary system" was taken by Sarkozy to mean that G20 leaders have finally acknowledged that the current arrangement is a problem."