Dollar in trouble

Renewed US dollar weakness is the theme in early 2010. The currency slipped 1.6 percent against the basket of currencies in the month to-date as it lost about one percent against the euro.
The reasons, of course, are quite obvious: continued job losses which dampened hopes of economic recovery, fears of yawning trade deficit that jumped to the highest level in 10 months and decision to keep interest rate low for quite some time by the U.S Federal Reserve.
Yet many economists say that the hand-wringing over the U.S. dollars fall has been overdone, citing that although the greenback is expected to remain weak, declines will decelerate in spite of debates over the dollars role in the world economy.
After a spate of news a quarter ago, when likes of United Nations and World Banks President called for the need to understand dollars ending privilege and explore its alternative, dollar bashing news has resurfaced of late.
Last week, French President Nicolas Sarkozy urged an end to the US dollars global dominance, warning that its weakness poses an "unacceptable" threat to European competitiveness. "The monetary disorder has become unacceptable," said Sarkozy, calling for a multi-monetary system for a multi-polar world.
Sarkozys view gained the backing of the Nobel Prize-winning US economist Joseph Stiglitz, who said that a (US) dollar-based system might have made sense in the 20th century but doesn make sense in the 21st century.
Asia had similar sentiments last week, when a former top Japanese finance official said the region should consider a common currency and push for a regional monetary fund as economic integration picks up speed.
"It may be several decades to create an Asian currency, but it may be the time to start thinking about it because Asian economic integration is gradually approaching the level of Europe," said Eisuke Sakakibara, who served as Japans vice finance minister for international affairs during the Asian financial crisis.
Opposing to this hype, however, the head of the International Monetary Fund says US dollar will remain the de facto world currency despite predictions that the euro or Chinese yuan will soon overtake it. "The US currency is going to remain the main currency in my opinion for a long period of time, even if its challenged by some others," Dominique Strauss-Kahn said on Wednesday.
But perhaps Strauss-Kahn overlooked one small statement earlier made by Sakakibara, that a $120 billion currency swap fund to be launched by East Asian economies in March could also be developed to become an Asian Monetary Fund. From a currencys perspective, the decade has certainly begun on an interesting note.