The future of the US Dollar - Case Study Example

Since the start of the crisis, economists argued that its impacts have damaged the dollar’s status across the globe. Following the crisis, there has been a lot of negative talk about the dollar. Additionally, conflicting views regarding the path of dollar have emerged. Though a considerable number of nations are still using the dollar as their exchange-rate anchor, there are arguments that the U.S. dollar might lose its position as the main reserve currency (“General Assessment of the Macroeconomic Situation” 2009).

Investors went ahead and revisited their currency reserve investment. This was due to the downward trend of the dollar in comparison with other currencies. Therefore, the dollar has been experiencing great pressure from major investors mainly due to the inflations that have occurred since the dollar became the world’s reserve currency. This paper is a critique of Warnock’s article Global Asset Allocation: Whither the U.S. Dollar? The paper will analyze the authors’ perspective on the U.S. dollar, describe three of the most powerful arguments towards a stronger/weaker dollar, and give my opinion regarding the authors’ prospects for a stronger U.S. dollar. 1) Critique of the author’s perspective on the U.S. .

Warnock (2010) argues that though foreign central banks might start diversifying away from the dollar, this does not mean that the dollar is losing its position. This is an indication of overconfidence, given that the dollar is increasingly becoming less popular across the globe. Additionally, there has been worrying increase in inflations, which depict that the major economies will intervene. An intervention would mean possible replacement of the dollar with another currency (Chandler, 2009). a) Describe three of the most powerful arguments towards a stronger/weaker dollar.

  There are several arguments towards a weaker dollar. Warnock (2010) argues that U.S. dollar is not in any danger of being displaced as the world’s reserve currency. They claim that the U.S. treasury bonds continue being the cordial and liquid fixed income market globally. This thus continues to enhance the demand for the dollar. The authors give an example of continued success of the dollar performance in the fall of 2008 when most currencies and assets decimated (“The Euro as an Anchor Currency and Core of a Currency Bloc,” 2012) The next argument is that the U.

S economy remains the most competitive economy in the world. Although most critics argue that the U.S economy is still facing decline in domestic production, Warnock argues that U.S. is still the world greatest manufacturer. He refutes claims that China’s economy is outdoing the U.S economy (Warnock, 2010). The other argument is that the U.S trade deficit has been exaggerated. According to Warnock (2010), much of the trade deficit is because of overseas movement of goods and services which has happened within U.S. companies.

The exchange is between U.S based