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U.S. dollar's supremacy under 'slow-burning fuse,' economist says
By Kim Deok-hyun
SEOUL, June 18 (Yonhap) -- The U.S. dollar's supremacy as the world's reserve currency is facing profound challenges as the balance of economic and financial power is shifting from the West to the East in the wake of the current global economic crisis, an economist said Thursday.
"There is a slow-burning fuse underneath the dollar," said Gerard Lyons, chief economist at Standard Chartered Bank, at the World Economic Forum on East Asia being held in Seoul.
Triggered by a systemic failure of the U.S. financial system and an imbalanced world economy, the current crisis prompted emerging heavyweights such as China and Russia to renew their calls for a new global reserve currency.
A decade ago, Asian central banks owned one-third of global currency reserves, Lyons said. And that has risen to two-thirds for now.
"Although this has been called the 'dollar trap,' the reality is that countries do not want to sell the dollar actively. Instead, passive diversification is under way," the economist said, referring to discussion between China and Brazil over paying for each other's trade in their own currencies.
With regional trade flows having already shifted, and with more bilateral deals such as rising intra-Asian trade and greater flows of commodities, goods and investment between Asia and the Middle East, the dollar's status will be increasingly under threat, Lyons said.
"As trade flows change, we expect more countries to manage their exchange rates against baskets of currencies with which they trade," he said.
Currently the dollar accounts for more than 60 percent of global foreign exchange reserves.
Still, many economists and analysts say the dollar won't lose its status as the global reserve currency because of the greenback's strong influence in global trade of commodities and key assets for central banks around the world.
kdh@yna.co.kr
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