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Dollars and dominance

A Pakistani currency dealer counts US dollars
What is the future of the dollar and how will it affect the global order?

BBC Radio 4's Analysis: Dollars and dominance is broadcast on Thursday 23rd October at 20:30 BST and repeated on Sunday 26th October at 21.30 BST.

Amidst global financial chaos centred on the US, one thing seems constant - the appeal of the US dollar. It's not only a safe haven in times of trouble, but also a potent symbol of US power and influence in the world.

As the global reserve currency it has given the US lucrative power to write cheques that no-one ever cashes, providing the finance for both foreign wars and domestic bank bail-outs.

I think that today's financial crisis is going to hasten the end of the dollar as the world's reserve currency.
Avinash Persaud

But as this programme discovers, the dollar may no longer remain such a pillar of US power.

Before the crisis its value had been steadily declining. That suited many Americans and their political leaders - a weaker dollar boosted US exports and manufacturing jobs.

But no longer can the powers that be in Washington tell the rest of the world, as a 1970s Treasury Secretary once did, that the dollar is "our currency, but your problem". And the crisis has raised new questions about how far the US can afford its foreign policy commitments and its need to keep the domestic economy afloat.

Ngaire Woods
Ngaire Woods, Professor of International Political Economy.

Rising powers such as China and the Gulf states now have huge reserves in dollars. That makes them, very keen on a strong dollar now.

But if they decided to switch allegiance they could suddenly destabilise the US currency. It's been called a "balance of financial terror" that the US must now live with.

If the dollar is in decline as a global currency, what of the alternatives? The euro has a global role, but no political leadership to match that of the US. Many expect the Chinese currency to rival or overtake the dollar as the global balance of economic power changes, but that will take time.

It's like the idea of mutually assured deterrence. We hope that everybody becomes respectful of the financial power of the other side, but that such destructive power won't be deployed.
Barry Eichengreen

So in the meantime, we are left with a world in which the dollar plays a more and more controversial and uncertain role - still a key pillar of American power, but a currency over which the rest of the world has more and more control.

Contributors:

Avinash Persaud, Chairman of Intelligence Capital Limited

Barry Eichengreen, Professor of political economy, University of California, Berkeley

Harold James, Professor of History, Princeton University

David Marsh, author "The Euro: The Emerging Global Currency"

Dr Albert Park, Reader in Economics, Oxford University

Jim O'Neill, Head of Global Economic Research at Goldman Sachs

Presenter: Ngaire Woods
Producer: Chris Bowlby
Editor: Hugh Levinson


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In next week's programme, solicitor Ann Alexander examines how public inquiries work - and how they fail.




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