U.S. dollar's supremacy under 'slow-burning fuse,' economist says

By Kim Deok-hyun
SEOUL, June 18 (Yonhap) -- The U.S. dollar's supremacy as the world's reserve
currency is facing profound challenges as the balance of economic and financial
power is shifting from the West to the East in the wake of the current global
economic crisis, an economist said Thursday.

"There is a slow-burning fuse underneath the dollar," said Gerard Lyons, chief
economist at Standard Chartered Bank, at the World Economic Forum on East Asia
being held in Seoul.
Triggered by a systemic failure of the U.S. financial system and an imbalanced
world economy, the current crisis prompted emerging heavyweights such as China
and Russia to renew their calls for a new global reserve currency.
A decade ago, Asian central banks owned one-third of global currency reserves,
Lyons said. And that has risen to two-thirds for now.
"Although this has been called the 'dollar trap,' the reality is that countries
do not want to sell the dollar actively. Instead, passive diversification is
under way," the economist said, referring to discussion between China and Brazil
over paying for each other's trade in their own currencies.
With regional trade flows having already shifted, and with more bilateral deals
such as rising intra-Asian trade and greater flows of commodities, goods and
investment between Asia and the Middle East, the dollar's status will be
increasingly under threat, Lyons said.
"As trade flows change, we expect more countries to manage their exchange rates
against baskets of currencies with which they trade," he said.
Currently the dollar accounts for more than 60 percent of global foreign exchange
reserves.
Still, many economists and analysts say the dollar won't lose its status as the
global reserve currency because of the greenback's strong influence in global
trade of commodities and key assets for central banks around the world.
kdh@yna.co.kr
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