Can The Euro Overtake The U.s. Dollar As The World's Reserve Currency?

by S. Wade Hansen

The U.S. dollar (USD) is currently the world's reserve currency. If you look around at most central banks around the world, you will see that the majority of them hold the majority of their assets in U.S.-dollar based assets---like U.S. treasuries. However, the slide of the USD has caused many to wonder if the governments and central banks of the world are going to shift from the USD to the Euro (EUR) as their reserve currency of choice.

This is a fundamentally paramount question because if the majority of  governments and central banks do decide to go with the EUR as their reserve currency of choice, the value of the USD will plummet as supply floods the market and the value of the EUR will skyrocket as demand increases.

Recently, George Soros---you know, the billionaire investor who brought the Bank of England (BOE) to its knees a while back---weighed in on th topic. He doesn't believe the EUR can replace the USD as the world's reserve currency.

"I don't think that the euro can replace the dollar. And a system with two major reserve currencies? Not a stable system," he said.

"I think that eventually the dollar will re-emerge as the reserve currency, but then the U.S. will have to abide by certain rules that the Washington consensus has been imposing on others but not on the United States," he said.

Personally, I don't think the USD can be replaced as the world's reserve currency either, but I also don't believe the USD will control as large a percentage of the world's reserves in the future either.

The move away from USD dominance will have to be a slow one though. Too many economies are too closely linked the USD to allow it to drop in a free fall.

What are your thoughts?