KEY POINTS:
The dramatic decline of the US dollar may have become so entrenched some experts now fear it is irreversible.
After months of turmoil on the money markets, lack of confidence in the world's totemic currency has become so widespread that an increasing number of international traders are transferring their wealth to stronger currencies such as the euro, which recently hit its highest level against the dollar.
"An American businessman who is given the choice would take anything but the dollar," David Buik, of Cantor Index, said yesterday. "I would want to be paid in yen, and if not yen then the euro or sterling."
Matthew Osborne, of Armstrong International, added: " There are a few dealers who may take the view they'll take dollars now, while they're cheap, and hold on to them for 12 months.
"But the problem is so serious there are people who in July or August might have been thinking, 'I'm paid in dollars, how annoying' for whom it's now a question of, 'Do you have a job, do you have a bonus?"'
The collapse of the sub-prime mortgage market in the US, which is fuelling the dollar unrest, has already brought down one British bank, Northern Rock, and has forced others to declare vast losses. Just as it appeared that the dollar might have finally reached its floor, there was another warning that the sub-prime crisis is going to get worse.
The US Treasury Secretary Henry Paulson warned an international business summit in South Africa: "The sub-prime market, parts of it will get worse before it gets better."
The dollar's plight is made still worse by a jarring signal from China that it is switching to other world currencies.
China has stockpiled £700b worth of foreign currency, and has only to decide to slow its accumulation of dollars to weaken the currency further. Last month, in a humiliating turn of events, the central bank in Iraq, four years after the United States invaded, stated that it wished to diversify reserves from a reliance on dollars. Korea's central bank has urged shipbuilders to issue invoices in the local currency and take precautions against the weakened dollar.
- INDEPENDENT
