CNNMoney guest columnist Scott Boyd is a currency analyst with Toronto-based foreign exchange trading firm OANDA.
Despite the dollar’s dominance over the past six decades, some feel it may be time to reconsider the dollar’s historical position as the world’s preferred currency.
When the U.S. dollar experienced a pronounced devaluation during the last recession, the Organization of the Petroleum Exporting Countries (OPEC) argued against pricing oil in dollars.
OPEC members complained that a weaker dollar resulted in declining revenues after converting to other currencies and some OPEC countries even went so far as to demand to be paid in euros which was particularly strong at the time.
China also joined the chorus of dollar doomsayers warning that it was “reconsidering” including the dollar as part of its foreign currency reserves. China is by far the largest holder of foreign currency reserves with a reported $2.85 trillion as of the end of 2010.
About 65% of this ($1.85 trillion) is held in U.S. securities while 26% ($741 billion) is denominated in euros. Japan also maintains a significant U.S. dollar exposure with nearly $900 billion in its reserves.
As the fastest growing economy on the planet China certainly has the means to build up a considerable reserve fund, but it is America’s dependency on deficit financing that makes so many U.S. dollars available for purchase in the first place.