Foreign Impact on Dollar: A Love-Hate Relationship

In the past few weeks several news stories purporting foreign actions against and for the dollar.  Which is it?

There have been stories that say that China and Russia have been looking to remove the dollar as the predominate reserve currency for the world.  They had to know that such uncertainty would cause mass-selling of the greenback.  Then on Thursday we see that central Asian banks (and Russia) are buying up Dollars in huge quantities.  Of course that will buoy the dollar in these troubling times, but why badmouth the U.S. currency, then prop it up?

They have economies too.  If the dollar gets too weak while it is still the currency for purchasing oil and other commodities, it starts to cost much more to purchase those things.  Many Asian countries are also mass-exporters so a weak dollar means that the largest consumer nation in the world cannot afford their products.  In order to keep their own currencies from getting too strong, they divest in their nations money and put it into the dollar.

In the last week, it has been reported that Russia bought as much as $4 billion U.S. dollars in effort to pull the dollar of it’s lowest point in over a year.  Why would someone so interested in seeing the Dollar replaced by another global currency by floating it?  Timing is everything.

Russia, China, and the middle-eastern OPEC nations would love nothing more than to see the U.S. currency replaced as the global standard.  That doesn’t happen overnight and if they aren’t careful, their economies will be crushed during this coup-de-currency.  They are using backroom maneuvers to position the IMF’s (international monetary fund) global currency, the SDR as the world’s new reserve currency and the OPEC is considering using the SDR for oil purchases.  There is no way to do that quietly so the world has to prop up the failing dollar while the change takes place.  Make no mistake, the change will happen.

The real risk is what happens when the double-dip recession takes hold.  All of these nations are dumping billions into the American dollar and if it continues downward, those other countries lose significant wealth.  There will not only be no American economy to buy their goods, as their currencies strengthen, no one will be able to afford their goods.

It is obvious that a serious push to support the U.S. currency is occurring.  If the dollar continues downward, the second portion of our double-dip recession could be  blood-bath.