NCPA - National Center for Policy Analysis


June 2, 2008

In his new book, "Biography of the Dollar," Wall Street Journal reporter Craig Karmin explains how the dollar became the premier global currency -- and why its dominance is now being threatened.

At a time of widespread dollar bashing, Karmin puts the greenback's slide in perspective.  Despite recent developments, the mighty U.S. buck is still the global currency of choice, although the euro is gaining ground.  For example:

  • The dollar figures in nearly 90 percent of all trades in the more than $3.2-trillion-a-day foreign exchange market.
  • Nearly two-thirds of the world's central bank reserves are held in dollars.
  • However, in 1999, about 71 percent of world reserves were held in dollars and 18 percent in euros.
  • By 2006, the dollar figure had fallen to 66 percent, while the euro reserve total rose to 25 percent.

Since 1971, the year when the gold standard ended and currency trading began, the U.S. dollar has experienced five extended trading cycles, says Karmin.  These include periods in which the dollar was weakened (1971-1978, 1985-1995, and 2002-present) and periods of increasing dollar strength (1978-1985, and 1995-2002).  One cause for concern about these cyclical patterns is that the dollar lost more ground during the weak years than it made back during the strong ones.

Source: "The Buck Starts Here," The American, May/June 2008; based upon: Craig Karmin, "Biography of the Dollar," Crown Business, February 26, 2008.

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