The US dollar lost much of its lustre over the past decade as its status as a global reserve currency was challenged and its value against most key currencies saw erosion. On the foreign exchange market, the euro was virtually on parity with the dollar at December 31, 1999 but a decade later the greenback has fallen by 30 percent against the single European currency.
The euro, launched on January 1, 1999, fetched around 1.43 dollars on Thursday, the last trading day of the year. The dollar's rapid fall against the euro is ironic as the US Federal Reserve had to come to the rescue of the faltering single European currency in September 2000 as part of a co-ordinated market intervention by major central banks.
The greenback also faced the same misfortune against other key currencies. While it was roughly stable against the British pound, it has lost nearly 10 percent against the yen and a hefty 35 percent against the Swiss franc in the past decade. The trade-weighted US dollar index, a measure of the value of the US dollar relative to other world currencies, has lost 11 percent in the past 10 years.
One of the biggest falls, by 37 percent, was against the Canadian dollar, the currency of the top US trading partner. Despite the bearish performance, the dollar remains the benchmark of the exchange market. According to recent figures from the Bank for International Settlements, which serves as a bank for central banks, the share of transactions involving the dollar fell slightly to 88 percent in 2007 from 91 percent in 2001. The dollar also is less a benchmark in official reserves than it was 10 years ago.
On December 31, 1999, the International Monetary Fund (IMF) estimated the share of dollar-based assets held by governments, excluding the United States and China, was 74.9 percent. However, on September 30, 2009, it dipped to 70.2 percent.
The dropping dollar share was offset mostly by the euro, which some skeptics had doubted could rise to the challenge as a common European currency at its launch. "The euro is already beginning to challenge the US dollar's status as the world's primary reserve currency and it is an understatement to say that over the past 10 years, the euro has come a long way," said Kathy Lien, director of currency research at Global Forex Trading. In 1999, it was inconceivable to ask the head of the IMF whether the dollar's status was being threatened.
Today, he talks about it himself. "I expect the dollar to remain the principal reserve currency for some time," IMF managing director Dominique Strauss-Kahn said in a speech in November in Beijing. Ten years ago, the then-Federal Reserve chief Alan Greenspan raised in Congress the possibility of a monetary union involving "dollarized" countries. The greenback was once common in everyday life in Argentina, which was seriously considering ditching the peso, as well as in Bolivia, Russia and the Philippines.
Today, the South American trade bloc Mercosur, led by Brazil and Argentina, has abandoned the dollar in favour of local currencies for their trade, and Moscow sees the future of the ruble as a reserve currency. Some countries whose currencies are pegged to the US dollar, including the Gulf nations and Hong Kong, also faced strain as the greenback depreciated.
Kuwait broke ranks with fellow Gulf states in 2007 and dropped the peg to help fight then-soaring inflation. In 1996, the Federal Reserve found "over 60 percent" of US coins and dollar notes abroad but the share dropped to "approximately 50 percent" in 2007.
At the start of the decade, any proposal to quote oil in a currency other than the dollar would have been seen as far-fetched. Today, the Arab oil-rich states are reportedly toying with the idea, with China, Russia, Japan and France. In 1999, the debate on the international monetary system after the Asian financial turmoil focused on remedies to check currency instability. Today, the issue of a post-dollar scenario is being discussed.
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