More Bad News for the US Dollar's Reserve Currency Status

Uh-ho… The Swiss mega-bank UBS completed a survey of 80 central bank reserve managers yesterday. More than half predicted the US dollar would be replaced as the world’s reserve by a “portfolio of currencies” sometime in the next 25 years.

That UBS even conducted a survey on the dollar’s validity represents a sea change in attitude since we first published Demise of the Dollar in 2005.

Between them, the bank reserve managers control about $8 trillion.

“The results [of the survey],” according to The Financial Times, “are the latest sign of dissatisfaction with the dollar as a reserve currency, amid concerns over the US government’s inability to rein in spending and the Federal Reserve’s huge expansion of its balance sheet.”

In another shift of strategy, none of the managers surveyed by UBS say they plan to sell gold over the next few years.

A few even fessed they plan to add to their stashes of Midas’ favorite metal.

The World Gold Council claims central banks are on track to make their largest annual purchases of gold this year since Richard Nixon “closed the gold window” in 1971 and cut the dollar’s last remaining tie to gold.

Russia and China are doing their part to accelerate the dollar’s demise. The two nations’ central banks have signed an agreement to conduct trade in rubles and yuan.

“This agreement,” says Russian Central Bank Deputy Chairman Viktor Melnikov, “allows for settlements through Russian and Chinese banks not only in the freely convertible currencies but also in the yuan and the ruble.” It builds on a handshake deal between Russian President Vladimir Putin and Chinese Premier Wen Jiabao that we told you about seven months ago.

“Dollar’s Reserve Currency Status at Risk Following Russia-China Deal,” reads a breathless headline on this story at

“The headline is a bit overblown,” says our acquaintance, the veteran US diplomat Chas Freeman, “but it – and the underlying story – is a step in the direction it posits.”

Addison Wiggin
for The Daily Reckoning