US Dollar Looks Increasingly Like An Orphan 2

It's getting lonelier at the top...

Global central banks appear to be distancing themselves from US policies that undermines the US dollar.

This from Bloomberg's Chart of the day: (all bold highlights mine)

``Central banks have been shifting their record reserves into the euro at the expense of the U.S. dollar. Investors may not follow, with America’s saving rate and trade balance data back at levels that prevailed when the European currency was unveiled in 1999."

``The CHART OF THE DAY shows the percentage of allocated world currency reserves in dollars has fallen as holdings in euros increased in the past decade, according to quarterly data compiled by the International Monetary Fund. Also tracked are the U.S. personal-saving rate and trade balance as a percentage of gross domestic product.

``A second chart shows the Intercontinental Exchange Inc.’s Dollar Index setting lows around the times Bear Stearns Cos. collapsed and Lehman Brothers Holdings Inc. went bankrupt. Short-term interest rate differentials favor the euro over the dollar, though only by 0.75 percentage point, the data show.

``The dollar’s position as the world reserve currency has been called into question since reaching an almost three-year high in March. The currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30."

From media's side, it is massive "unproductive" deficits, interest spreads and 2008's liquidity squeeze that have combined to weigh on the US dollar.

Whereas from our end, we see policies to sustain the status quo or the paradigm of consumption or spending financed via debt or inflation that would weigh more than the above. Of course, the popular explanation has its influence too.

When debasement becomes an implicit policy then central bank peers could either engage in "competitive devaluation/currency war" or undertake a monumental shift from their dependency on the present currency standard platform to possible substitutes.

As we earlier stated in US Dollar Looks Increasingly Like An Orphan, rumors to peg trades in major commodities on ex-US dollar currencies plus central bank reserve accumulations away from the US dollar as shown above, apparently points to the direction of the erosion of the US dollar standard.

The US dollar's days as international currency reserve seems at its twilight.