Are We Witnessing the Demise of the Dollar?

Also, Algeria's Finance Minister Karim Djoudi told Reuters, "I don't see a need for oil trade to be denominated differently."

Currently, many officials are gathered in Istanbul for last week's G-7 meetings and this week's meetings of the International Monetary Fund and World Bank.

On Tuesday, a United Nations official said a new global reserve currency would help retract the United States' "privilege" of running up a massive trade deficit.

"Important progress in managing imbalances can be made by reducing the reserve currency country's privilege to run external deficits in order to provide international liquidity," said the UN's under-secretary general for economic and social affairs Sha Zukang.

Eswar Prasad, Cornell University's senior professor of trade policy, told ABC News today that the dollar's status is "fragile" but it is "not quite in demise yet because there is not a clear strong alternative."

Some possible alternatives would be the Chinese yuan, known as the renminbi, the currency for the most populous nation, and the euro, the world's most actively traded currency after the dollar.

Prasad said the average American should "definitely be worried" if the dollar loses its position as the world's reserve currency.

"If the dollar maintains that status and the rest of the world is willing to accept dollars and buy dollar-denominated bonds issued by the U.S. government, then essentially it allows the U.S. government to partly finance its operations through financing provided by other countries," Prasad told ABC News.

"If the dollar did not have that status, it would be much harder for the U.S. government to run large deficits because all the bonds would then have to be purchased by U.S. residents, which would drive up interest rates and thereby affect the average American."

"If you are the average Joe, you should definitely be worried because if the U.S. dollar loses its status it is going to mean higher borrowing costs for the U.S. government, which will mean the average Joe will have to pay higher taxes, the U.S. government will spend less on services, and there will be higher interest rates -- or some combination of the above."

John Williamson, a senior fellow at the Peterson Institute for International Economics in Washington, said the demise of the dollar is hardly imminent.

"I don't think it's true in any imminent sense," he stated. "If we're talking 50 years, it may be true. If we're talking the next two to three years, I don't think it's realistic."

Williamson noted that there are two schools of thought among economists on this issue.

"Some think it really wouldn't have any major impact. Others think the impact of the reserve role of the dollar is quite important, quite fundamental, to allow it to run up the types of deficits it's run in real years. I'm in the school that tends to think it's less essential to keep the dollar as reserve currency."

One fear, he observed, was that the leading foreign holders of U.S. government debt, China and Japan, would elect to hold assets from other countries instead.

"I doubt it makes that much of a difference," Williamson said. "They'd have to decide to hold something else instead. The euro is realistic to some extent. The renminbi would doubtlessly become realistic. But I don't think that there's a realistic alternative right now."

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