As noted frequently on this website, the Federal Reserve’s failure to focus on the original role of central banks - maintaining a stable currency - will erode the dollar’s role as the world’s principal reserve currency.
If Fed Chairman Bernanke persists in his Keynesian, socialistic attempts to control the economy with monetary policy, the United States will move closer to the day when China and other holders of massive dollar reserves will be able to dictate economic policy to us.
The Wall Street Journal reports overseas reaction in its October 15, 2010, edition:
Specter of Stimulus Spurs a Run From Dollar
Quote:
The dollar fell against a range of currencies Thursday as prospects for Asian economic growth contrasted with the likely need for more stimulus in the U.S.
A monetary-tightening move by the Monetary Authority of Singapore accelerated the dollar’s slide, knocking the greenback to long-term lows against rivals around the globe before the dollar regained some poise in New York trading.
Investors viewed Singapore’s decision to widen and raise the Singapore dollar’s trading band as an indication Asian economies are strong enough to tolerate monetary tightening, while the dollar languishes under the likelihood of more easing by the Federal Reserve…
The Singapore news accelerated dollar selling that had already been stoked by concern over low U.S. interest rates, a run-up in Asian equities this week and large gains in commodities like gold and oil.
“A broader emerging-market move against the dollar is starting to become more acceptable,” said Steven Englander, a currency strategist at Citigroup. “Singapore may be at the leading edge of Asia, but what is of concern is that others may follow."
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