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Dollar seen losing global reserve status

28 June 2011 14:46 (UTC +04:00)

More than half the managers, who were polled by UBS, predicted that the dollar would be replaced by a portfolio of currencies within the next 25 years.

That marks a departure from previous years, when the central bank reserve managers have said the dollar would retain its status as the sole reserve currency.

UBS surveyed more than 80 central bank reserve managers, sovereign wealth funds and multilateral institutions with more than $8,000bn in assets at its annual seminar for sovereign institutions last week. The results were not weighted for assets under management.

The results are the latest sign of dissatisfaction with the dollar as a reserve currency, amid concerns over the US governmentâ€™s inability to rein in spending and the Federal Reserveâ€™s huge expansion of its balance sheet.

â€œRight now there is great concern out there around the financial trajectory that the US is on,â€ said Larry Hatheway, chief economist at UBS.

The US currency has slid 5 per cent so far this year, and is trading close to its lowest ever level against a basket of the worldâ€™s major currencies.

Holders of large reserves, most notably China, have been diversifying away from the dollar. In the first four months of this year, three quarters of the $200bn expansion in Chinaâ€™s foreign exchange reserves was invested in non-US dollar assets, Standard Chartered estimates.

The prediction of a multipolar currency world replacing the current dollar dominance chimes with the thinking of some leading policymakers.

Robert Zoellick, president of the World Bank, last year proposed a new monetary system involving a number of major global currencies, including the dollar, euro, yen, pound and renminbi.