Welcome to the Currency War, Part 5: The Dollar Gets Serious Competition

"Not so long ago the dollar was the world’s only reserve currency. Everything else was one (or several) steps down in terms of safety and liquidity, and major financial institutions acted accordingly, accumulating dollars for the risk-free parts of their portfolios. Global demand for dollars was, as a result, effectively infinite, which meant the US could borrow whatever it wanted, secure in the knowledge that the Treasury bonds it created would find willing buyers.

But quietly, over the past couple of decades, the dollar has been joined at the top by the euro, yen, pound sterling and Swiss franc. And now the list of legitimate reserve currencies has expanded to include Canadian and Australian dollars:...

Note that the Chinese renminbi (aka the yuan) and Singapore dollar aren’t on the list. But they will be soon, with China now the second biggest economy (and an aggressive importer of gold) and Singapore becoming the preferred destination of global savings (especially gold storage) now that Switzerland has been cracked by the IRS and other tax authorities. See China’s next step in yuan overhaul is convertibility.

Gold, meanwhile, is once again being accumulated rather than dumped by central banks, and has already, arguably, replaced the dollar as the most coveted reserve asset. This, by the way, is simply a return after a 40-year absence to the place gold has occupied since the beginning of recorded history.

What does this mean for the dollar? First, a lot of central banks and trading firms will sell dollars to buy those other currencies and gold in order to make their portfolios reflect evolving financial realities. That selling pressure will, other things being equal, lower the dollar’s relative value, which is another way of saying that the US might not be able to borrow infinite amounts of money going forward, forcing us to either cut annual deficits far faster than is currently planned or pay a higher interest rate on future borrowings, which would increase future deficits.

The US, in short, will finally be subject to the same economic laws as lesser countries, with the same result: excessive debt and money printing lead to currency crisis which leads to depression."

at http://dollarcollapse.com/currency-war-2/welcome-to-the-currency-war-part-5-the-dollar-is-now-one-of-many/