And now Greenspan tells them - "gotcha, suckers - all these IOUs you got from us, you'd better dump them because they're not good for much." Which could of course cause a self-fulfilling prophecy as dollar holders see the value of their reserves drom, are tempted to sell, and these sales cause further drops. So far the sang froid of all these countries has been quite remarkable, and the fall of the dollar very orderly,
Presumably they're not selling in large volumes because they don't want the dollar to fall even more. But wouldn't they be mad to continue buying Dollars with their exports?
Most of the exporting countries are still extremely cash rich and have to put their continuing surpluses somewhere - and I very much doubt its the Dollar if they can possibly avoid it. Ergo the Euro will become the international reserve currency almost by default.
This will not be without its problems for the EU as EU exports will be priced out of many markets by the rising currency. The only thing that will save the EU is that it has a very large internal market as well.
Presumably the EU financial industry will also be a long term beneficiary - with London and New York losing out. But we still have a very long way to go before this plays out, and the US will discover that once you lose the trust of your trading partners, its very hard to win it back. "It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
The resource-rich can back out of the dollar if the neo-mercantalists do not, because the active defense of dollar pegs or dollar-dominated pegs requires neo-mercantalists to issue domestic currency and use it to acquire dollar denominated assets and hold them.
However, the resource-rich can only do so if they do it slowly and cautiously, because something that looks like a run on the US$ may spur the neo-mercantalists to shift their peg ... which would lead to a meltdown in the US$, and a meltdown of the US$ will meltdown much of their accumulated financial holdings directly, and because major crises in any specific main money center is bad for business in all money centers, will also hurt their € and £ and ¥ holdings. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
