A new report from bond giant Pimco predicts the dollar's days as the world's reserve currency are numbered.
“We are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative,” Pimco Managing Director Curtis Mewbourne says in a report.
“In combination with other factors, that likely means a continuing devaluing of the U.S. dollars versus other currencies, especially the EM currencies.”
“Accordingly, investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure.”
Mewbourne acknowledges that the U.S., European, and Japanese economies remain the largest and most dominant but observes that emerging economies are reaching the tipping point of global economic impact.
Plus, he notes, emerging countries hold the lion’s share of international reserves.
He points out that China already has currency swap arrangements with a number of countries so that trade financing can be negotiated in yuan instead of dollars, and several countries can now replace part of their foreign currency reserves with non-dollar-denominated bonds issued by the International Monetary Fund.
Peking University professor Michael Pettis says that if the current U.S. deficit declines quickly, the problem of too many dollars being held overseas will disappear.
“Once the world stops accumulating hundreds of billions of dollars every year through the U.S. current account deficit, the argument over the dollar will fade away,” Pettis told The International Business Times.
“A larger portion of foreign reserves, and probably international trade, will naturally be denominated in non-dollar currencies.”
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