Is the dollar dead?

Johannesburg - "The dollar's days as the world's global currency may fast be coming to an end - and the euro and yen aren't necessarily going to fill the gap.

"Is it unrealistic to posit that the conditions precedent required to create the mother-of-all carry trades out of the west and into the rest are now falling into place?" asked Michael Power, a strategist at Investec Asset Management. He was addressing journalists in Sandton on Tuesday.

He believes the dollar is in trouble, pointing out that as the US economy weakened, much of the current "reflex strength" in the dollar could be reversed and this could act as a "self-reinforcing spur for yet further outflows", similar to what hit the Japanese yen.

"We should expect to see capital from the dollar, euro and yen zones start to migrate in search of greener pastures in emerging and frontier markets."

For many years, the US was widely recognised as the driver in the global economy and many commodities and assets were valued in dollar. Power believes that the current economic crisis is providing an opportunity to reform the global marketplace.

Euro not alluring

He expects outflows from the US currency as investors seek better, more secure returns.

"The US position and status in the world economy is starting to fall."

Power went on to say that the US dollar has been strong for all the wrong reasons. "Expect dollar weakness, a weakness compounded by the gradual erosion of its reserve currency status."

As the European economy is also fading, the euro is not an enticing alternative.

Countries such as Portugal, Italy, Greece and Spain (Pigs) have large current account deficits and low levels of growth, which have been accentuated by the global economic meltdown.

Power said: "Hard-working Germans are not prepared to bail out the Pigs."

With the increasing importance of Asian economies in the global market place, Power believes that the Singapore dollar is one currency that could benefit from the global shift.

"The Singapore dollar could become the Swiss franc of Asia."

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