An Unlikely Dollar Ally

Hoorah! The dollar is saved! How do we know? The Russian finance minister told us so!

The dollar is in “good shape” according to Alexei Kudrin, who cautioned the Group of Eight conference in Lecce, Italy, over the weekend that, “It’s too early to speak of an alternative [to the U.S. dollar].”

Even politicians from the Former Soviet Union have the right to their opinion, of course, just as we reserve the right to disrespectfully disagree. And, so it appears, do other members of the same, somewhat confused Rusky government. A few days before Kudrin was heard drumming up support for his unlikely ally at the G8 roundtable, Russia’s president, Dmitry Medvedev joined China’s central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.

From where came this unlikely champion of U.S. currency, we wonder, and is he really looking out for the John Q. Citizens of Anytown, U.S.A.? Not likely. Politicians, as we know, are invariably brewed from near equal parts malice and fraud. Some are a little more evil, others a little more deceptive. Kudrin, rather than simply trashing the greenback outright, understands that a gradual move toward an unspoken alternative currency might behoove his own nation’s global position over the long run.

For starters, Russia has some 138.4 billion of those dollars stashed under a few tones of soviet concrete in Moscow. If the value of the greenback drops too quickly, the buildings atop that stash risk caving in themselves. Other countries with big dollar reserves understand this too, which is one reason China, the largest U.S. creditor, doesn’t simply dump $767.9 billion of U.S. debt on the open market.

It’s also why, speaking just a few days before the abovementioned G8 party, Japan’s finance minister, Kaoru Yosano, described his faith in the U.S. Treasury securities as “unshakable.”

“We have complete trust in the fact that the U.S. views its strong- dollar policy as fundamental,” Mr. Yosano said in an interview in Tokyo without, we might add, even cracking a smile. But we can think of 686.7 billion reasons Mr. Yosano might resist the urge to burst into uncontrollable fits of laughter. If word gets out that all those green notes aren’t worth the numbers printed on them, what can Mr. Yosano hope to get for them? The same goes for Mr. Kudrin and Mr. Guido Mantega of Brazil, who sits on over 125 billion of them himself.

The case could be made that the abovementioned fellows are actually more responsible stewards of the greenback than either Greenspan or Bernanke, who both actively sought to devalue it by running the presses and lending at ridiculously depressed levels.

It’s all smoke and mirrors, mind you. Everyone knows the world can’t continue to trade in shells if every time the tide comes in another 300 billion of them turn up on the shoreline. What world leaders are doing is simply protecting the value of their own reserves by trying to pretend the tide won’t come in again. It will, of course, and then we’ll see everyone scrambling for coconuts, crushing the broken shells under their feet as they run.