WALL STREET DAILY – Weak or Strong, Dollar Persists as Reserve Currency

While lawmakers may have averted a disaster by reaching an eleventh hour agreement to raise the debt ceiling, there are lingering concerns about the lasting impact the debt debate may have on Americas standing in the world.

As it stands now, the United States is seen as the engine of the world economy. The dollar is the global currency reserve.

But the acrimonious debate raised concerns for Americans biggest creditors like China, which holds than $1.5 trillion in U.S. Treasuries.

The leaders of China value stability and predictability above all else and there has been nothing safe and predictable in Washington’s wrangling over the national debt.

But while the U.S. may have unnerved global investors around the world, some say there really are no alternatives.

Andrew Fieldhouse of the Economic Policy Institute says:

“I think the United States looks rather foolish right now but I do not think we will have lost our standing in the world. Much of the world economy is in real trouble. “

This environment also helps cushion the dollar, says Glenn Hubbard, who served as an economic advisor to President George W. Bush.

“The U.S. is a very powerful engine of growth for the world, It has been and will continue to be. And I don’t expect there to be too much of erosion in the dollar as a reserve currency. Remember, a currency is a statement about relative value when it is a reserve currency. It is not whether it is absolutely great but whether it is better than the alternatives can’t imagine at the moment believing that the euro or the yen are superior long term alternatives to the dollar.”

So while the shine might have gone off the U.S. dollar, there doesn’t seem to be any real alternative to it as the global currency.

Analysts say with no alternatives, America’s standing in the world is safe, at least until something better comes along.

Bottom line: The debt debate may have hurt the global reputation of the United States, but analysts say America’s standing is safe until something better comes along.

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