21 Oct 2009
Absolutely, says Professor Leo Panitch who teaches political economy at York University in Canada.
"The American dollar is not going away as the global reserve currency. There is nothing that can possibly replace it," contends Panitch.
The current speculation around the dollar needs to be seen in context, he says.
That context is: Structurally, to be a global reserve currency, a country must have deep domestic financial markets and enormous institutional financial capacity both through private banks and the central bank to be able to manage the amount of flow that goes on in the world in the daily exchange of goods and services through a monetary unit.
The reason the American dollar is what it is in the world today is precisely because it has that structural capacity where the federal reserve and the banks on Wall Street, which are closely integrated, have the deep institutional capacity to manage these flows.
Despite the financial crisis starting on Wall Street in America and notwithstanding the fact that the federal reserve was not a prudential regulator, the world's money still came rushing into American treasury bills and the American dollar in the immediate aftermath of the crisis because it is the safest monetary unit in the world.
It's the currency where the world's capital knows that their property will be protected because the American state stands as the protector of property in a capitalist world.
As a result, the value of the American dollar went up significantly in the middle of this crisis. It is just in the last few weeks that the dollar's value has dropped to it's 2007 value.
However, this current reduction in value does not represent a loss of faith in the US dollar as the fundamental unit of currency.
According to Panitch, nobody wants the American dollar to fall too far and certainly not to fall off its perch in terms of the responsibility that the American state takes.
The dollar may fall a little lower than the level that it was at in 2007, but Panitch says that the American state together with the central banks of Europe and Japan, in particular, are managing the global economy. They are managing it together and the Americans are top dog because they do most of the coordinating of the G20 and so on.
As America is at the centre of managing a global capitalist system, it will not allow the dollar to fall too far at the cost of the rest of the world, says Panitch.
At the same time, China, Russia and a few other countries are also preparing to replace the dollar with another global reserve currency, but Panitch argues that "they can't just pull it out of a hat."
"The Chinese simply do not have the institutional capacity and the depth of financial markets to do it." They may build this capacity in a generation or two, but right now they don't have it, he says.
To watch part two of this interview, please click here.