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Although the decline may be a boon for importers of U.S. goods, because they become cheaper, it is a concern for nations who park their earnings in U.S. dollars. For them a decline denotes a fall in the value of their investments.

So investors are increasingly looking for other options, like gold and silver, to hedge their U.S. dollar currency investments if the decline becomes irreversible.

The U.S. dollar has been the prime world currency for the past 60 years. It acquired world stature after World War II, when the British pound lost most of its value and passed on the mantle to the U.S. dollar. The Bretton Woods Agreement of 1944 regulated the commercial and economic order.

The circumstances that created the Bretton Woods Agreement are beginning to coalesce once again. The United States has been fighting two losing wars, besides digging itself the biggest financial hole in history. In addition, it has been heavily importing goods and services from China and other Asian nations while exporting far less to the same nations. This trade imbalance has hurt the U.S. dollar. Although this has been going on for decades, it has accelerated in the past 10 years.

Although economists were aware of the declining value of the U.S. dollar, it never became an issue as the government was playing to the gallery with expensive schemes, tax cuts and foreign wars. Each scheme had to be funded with money the United States did not have. So it printed it, backing it up with foreign reserves of other nations.

Then in 1995 China entered the picture, and money started pouring into U.S. banks and government coffers. As a result, the United States lost sight of its spending, little realizing that this would take its toll in 2008 and create a serious financial crunch.

The United States is not even close to fixing its financial problems. In addition, it wants to spend an additional US$1 trillion in the next 10 years on healthcare. It can only do this by printing and borrowing more money, which is not a very smart move.

If the United States is to remain a world leader it must first check its spending. Then it must balance its trade and later close down its wars. It must curb its greed for money and profits, which is affecting its financial system.

The financial crisis that began in 2008 with subprime loans could have been controlled if not for the movers and shakers on Wall Street, who out of pure greed bundled the subprime loans into investment vehicles and freely traded them as investments. Since nobody supervised these transactions, banks, insurance companies and other investors got sucked in.

As a result, the United States stumbled and came close to taking the rest of the world down with it. Thanks to the bailout amounting to trillions of dollars, it is still around.

This is the gloomy view of the situation, but there is another view. The United States believes that the dollar’s demise is wildly exaggerated – and this may be correct.

The United States is in big financial trouble, but is managing its way out of it. It is true that spendthrift leaders are not doing enough to control their urges, but in a democracy it takes a while to curb such tendencies. Now the country needs to reprioritize its agenda. Political will is needed to fix things, which has not emerged yet. The United States needs to boost confidence in its economy and currency.

If the U.S. dollar declines could the euro, yen or yuan replace it, singly or bundled together? This is questionable. Most people who talk about the U.S.decline fail to understand that smaller economies will have trouble replacing it.

The Europeans, with their euro, are divided by a multitude of cultures and interests. They prospered due to colonialism in the 18th and 19th centuries, when they could manipulate trade treaties at the tip of the spear. But they are torn by age-old animosities. It is possible that they could overcome their prejudices and become custodians of international finance, but not in the near future.

The euro did not exist until 1999. But when the United States suffered damage amounting to trillions of dollars due to the 9/11 terror attacks and fighting wars in Afghanistan and Iraq, the Europeans began to put their financial house in order. After a significant decline in the euro’s value, it recovered.

The EU’s gross domestic product is about US$16 trillion, and its population base about 500 million. In comparison, the U.S. GDP is US$18 trillion with a population base of 300 million. While the United States is united under one government, the EU is not. Therefore, the EU needs another two to three generations to coalesce into one political and economic entity. That is the only way it can provide leadership to the world.

Japan and China are vying for influence at the international currency discussion table and are also toying with the idea of a new world currency. Japan’s GDP is US$4.5 trillion. It has a pacifist Constitution and has been led by a bunch of centrist politicians since World War II. Its economy has been going through rough times in the past 10 years and its leadership has shown no interest in international economic affairs. It may provide support to a new economic order, but does not wish to be at the center of it.

A newly developing China, with its questionable statistics made to impress outsiders, is vying for the crown. It claims an economy worth US$4 trillion, and is eager to play a role at the international economic discussion table. The reason for its overconfidence is the US$2 trillion reserves it holds in the United States as a trump card for foreign and economic policy. Hardly does China understand that the United States is in no mood to remit those reserves back to it anytime soon.

If the dollar has declined in value, so has the value of China’s reserves in the United States. Moreover, all the foreign direct investment in China balances its cash reserves. The Chinese can do nothing but wait and watch for the U.S. economy to emerge out of recession.

All of this points to one thing – waiting until the U.S. economy recovers and puts its house in order. Only then, under strong U.S. leadership, will a modified economic world order emerge. Only then will the currencies of China, Japan, the European Union and India gain respect.

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(Hari Sud is a retired vice president of C-I-L Inc., a former investment strategies analyst and international relations manager. A graduate of Punjab University and the University of Missouri, he has lived in Canada for the past 34 years. ©Copyright Hari Sud.)