Are We Witnessing the Demise of the Dollar?

Oct. 6, 2009— -- Is the dollar's status as the world's reserve currency in jeopardy? How are U.S. officials responding? And should the average American be worried?

A report in The Independent newspaper today, citing Gulf Arab and Chinese banking sources in Hong Kong, said that Gulf Arab countries -- joined by China, Russia, Japan and France -- are planning to move away from pricing oil in dollars to using an array of currencies including the Japanese yen, the Chinese yuan, the euro, gold, and a new unified currency in the Gulf Co-operation Council including Saudi Arabia, Abu Dhabi, Kuwait, and Qatar.

Asked about this report today, a Treasury Department official had no comment. However, U.S. officials have been vocal in recent weeks about emphasizing their confidence in the dollar.

"A strong dollar is very important to this country. I mean that, and it's very important that people recognize it," Treasury Secretary Tim Geithner said last week at the Newseum in Washington.

"It does bring special responsibilities and burdens on the United States and it is very important that we make not just Americans but make the world understand that we are going to go back to living within our means. And that we are going to make sure that our independent Federal Reserve keeps inflation low and stable over time," he said.

Earlier that day at a House Financial Services committee hearing, Fed chief Ben Bernanke stated flatly that there was "no immediate risk" to the dollar.

The central bank chairman was responding to a lawmaker's question about World Bank president Robert Zoellick's comments earlier last week that the United States should not "take for granted" the dollar's status because it will be challenged in the future by a growing number of other options.

"I agree with two things Mr. Zoellick said," replied Bernanke. "The first is, I believe he said that there is no immediate risk to the dollar -- this is a relatively long-term issue. I also agree with him, though, that if we don't get our macro house in order, that that will put the dollar in danger and that the most critical element there is long-term fiscal stability."