So it makes it easy to get into foreign debt, but it does not cause it. In the long run, we're all dead. John Maynard Keynes
Bush's escapade in Iraq and Afghanistan has destroyed that particular aspect of dollar hegemony. The dollar is edging down now because it's obvious to everyone that the gamble has failed, Iraq has been lost, Iran cannot possibly be invaded successfully, and there is nowhere else to go.
The Euro's soft power can't compete directly with US militarism. So I wouldn't expect a massive overnight shift to the Euro. The economic fundamentals may be strong but not only are they not perceived as being strong - thanks to the relentless propaganda from the FT and the Econo - but the Euro zone is perceived as being militarily vulnerable to both Russia and China.
So what I think is more likely to happen is that the drift will continue without major shifts. A subprime meltdown could change that, or a coup or major terrorist attack on the US. But otherwise the Euro will continue to climb and the dollar will continue to fall at least while Bush is in office.
I'd guess $2.50 to the £ by the end of 2008 at the very least, and possibly even $3, with the Euro edging ahead of the pound even further.
And, yes Sterling, and subsequently, the Dollar have been global reserve currencies ultimately backed by the ability to project power globally.
But money/currency may always involve - irrespective of any "official" currency - a consensual two way process.
If both parties agree - then it's money - whether "IT" is cowrie shells, salt, gold, whatever.
In my opinion energy units are the most obviously fungible value units across borders, and land/property rental units the most obvious value units domestically.
For a monetary system all that is then required is a generic accounting system/transaction engine and a suitable guarantee mechanism for bilateral credit.
In essence, the result is the International Clearing Union proposed by Keynes at Bretton Woods.
If people are prepared to accept energy units as currency, then what the government does is a matter of indifference.
Except that you will still have to pay your taxes in the governments currency. And that is backed by violence and jails. And money from the government will be in the governments currency. That gives the governments currency an advantage over any alternative currency. And then there is of course inertia.
I just realised that I dreamt last night that Sweden had changed to euros and old swedish bills were useless. Pretty, but useless. Dreams are odd things.
