The doomsayers claim that the role of the dollar is being eclipsed by the rise of the Chinese yuan. Others see the demise of the dollar an some countries, like Iran and Russia, selling oil in other currencies than the greenback.Â
These all high profile developments, but they are not what they may seem. The yuan is still a relatively small currency, according to SWIFT. The transactions on SWIFT remain highly concentrated in dollars and euros. Â
China’s numerous swap lines lie largely dormant. It own Special Administrative Region (Hong Kong) accounts for much of the yuan-invoiced trade flows. Iran and Russian oil sold for other currencies beside the dollar constitutes a relatively small part of world trade or what economists refer to as the transactional demand for dollars. Â
There is still not significant rival for the dollar as a reserve currency, a transactional vehicle or a unit of account. Yet a compelling alternative has always stuck us as an unlikely scenario to topple the dollar. Instead, the abdication may be the more profound and insidious threat.Â
Investors may not have responded to last week’s failure of the House of Representative to grant Obama the same power (Trade Promotion Authority) that every other president over the past couple of decades has been given. They have not responded to the likelihood that the US Export-Import bank by be shuttered at the end of this month. Â
Investors do not appear particularly perturbed by the reluctance of US Congress to authorize payment of its new IMF quota. This reluctance has stymied attempts to reform the IMF to give some large developing countries a greater voice. This in turn has encouraged efforts for countries, like China, to develop parallel institutions. Â
Even if the markets have not registered these developments in any perceptible way, rest assured that policy makers around the world, allies and competitors alike are closely monitoring these developments. At stake is nothing less than US credibility and reliability.  Â
