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Gold was for centuries, if not millenia, the reserve of choice for royal and national treasuries alike. Large vaults underneath central banks brimming with the stuff. That was until the last century when an agreement was made to do away with the gold standard. This is when the American doller became the global reserve currency of choice.
This status as global reserve currency is propping up the American economy at the moment and has been for years. America the nation has become quite used to spending far more than it could gain from income. This essentially did not matter because of the reserve currency status. This advantage has been pushed a little far though and the times they are a changing. ......
There are theories aplenty that Saddam Hussain and self styled Colonel Gaddaffi were toppled principally for rejecting the dollar as their choice of reserve currency and also carrying out trade in currencies other than the dollar. Iran has certainly said that gold will again be its reserve and that it will trade in a mixture of its own and its trading partners currencies. Not only is this very unpopular with US politicians but even more so with their global banking names that will also slowly lose their dominance if this idea spreads.
Yesterday the Russian central bank followed the lead of others in announcing that they too would be joining the trend away from the dollar as sole trading currency. Across Asia, Africa South America, the Middle East and now Russia there is a slow but growing trend away from the greenback both as a trading and as a reserve currency. Why as a reserve currency? As the dollar devalues why hold onto it is the simplest answer.
America is not at the edge of a precipice as much as some commentators suggest, or rather they are, but it is in no-one's interest to see them go over. They have the same choices with regard to raising extra revenue and cutting spending as the rest of the west.
Just for a change there is some good news for the UK. We are financially outside of the troubled Euro and not tied to the dollar. As one of the few western nations that the rest of the world has financial respect for Sterling is seen as one of the stable currencies so when you read about central banks diversifying away from the dollar into a basket of Currencies, ours is usually in there. This is a gentle and long term positive for the economy of the whole UK.
