The King of Currency
By TAN Kee Wee
(MediaCorp 938LIVE’s Money Talks, Thursday, 9 July
2009, 7.50 am and 7.20 pm)
Before Michael Jackson, the King of Pop, dominated the
music world, there were the Beatles and Elvis Presley. Both
dominated the music world in the 1960s. Going back to the
1950s, it was Frank Sinatra.
With Michael Jackson now gone, many believe that no
one can replace him. Currently, there is an ongoing debate
whether his music would become more or less popular.
In the finance world, a similar debate is going on.
Here the question is: Is the dominance of the US dollar over?
And if so, which currency will take its place?
Just like great musicians throughout history,
currencies also come and go. In the 18th and 19th centuries,
the dominant currency was the British pound. In the 17th
century, it was the Dutch guilder. Go back more than two
thousand years, it was the Greek drachma.
Today, we are concerned about the US dollar. That’s
because the US Treasury has boosted the supply of dollars in
quantities, never seen or imagined before. With supply so
abundant, we expect the US dollar to weaken.
But if abundant supply is the criteria for a currency
to weaken, Japan’s experience in the past decade does not bear
this out. Because even though Japan flooded the world with its
currency, the yen did not weaken. Instead, it rose against the
Every day, we read and hear of more compelling reasons
why the dollar must fall. It is a mistake to view the dollar in
isolation. This is because currency markets do not operate in a
A currency does not have absolute value, only relative
value. In other words, a currency is valued on its relative
strength or weakness against another currency.
We must not forget that the US economy is not the only
one that is weak. The Japanese and many European economies are
just as weak, if not more. And the US is not the only country
that has printed lots of money. Many central banks have also
printed lots of money.
Whether the US dollar will remain as the “King of
Currency”, and as the world’s reserve currency really depends
on its appeal.
To my mind, the US dollar is still the most appealing.
No other currency has a flexible record stretching back to the
1970s. No other currency is backed by a larger economy. No
other currency is backed by a more sophisticated financial
system. And no other currency is backed by a more mature
political and military complex.
All these conditions point strongly in favour of the
US dollar as the dominant currency, now and in the immediate
future. It also suggests that the US dollar will
Like the monsoon rains that arrive on a seasonal
basis, the rise and fall of the dollar, against a basket of
currencies, also comes in cycles. Since 1971, the US dollar has
gone through five cycles, alternating between weakness and
strength. And each cycle lasts about seven years.
In its first cycle, between 1971 and October 1978, the
dollar fell some 30 percent. Then, from 1978 to February 1985,
it rose about 100 percent. In its third cycle, between 1985 and
September 1992, it fell some 50 percent. From 1992 to July
2001, it rose about 55 percent. In its fifth cycle, between
2001 and mid 2008, the dollar fell some 40 percent.
The dollar is now in its sixth cycle, which began in
mid 2008. So far, the dollar has risen only about 12 percent.
If this is the beginning of its seven-year bullish cycle, then
expect more upside for the dollar.
Let’s put it this way. There is still no serious
challenger to the dollar as the world’s dominant currency. If
the dollar were a street fighter, it could easily defeat all
those who dare to challenge its dominance. It would flex its
muscles and shout what Michael Jackson did in one of his famous
songs – Just Beat It!