I have written two posts on how the dollar is likely to face a catastrophic fall against the rupee. and more generally against other currencies. Currently the following factors are keeping the dollar strong :
- Net outflows of FII's from Indian Stock Market. It seems to me that on an average the FII's are withdrawing approximately 3000 crore rupees on a weekly basis (very rough estimate). Certainly this is putting a downward pressure on the rupee.
- Several countries have huge dollar reserves. China, over a trillion dollars, and the Arab countries which price petrol in US dollars. They thus have a vested interest in keeping the US dollar strong. (but for how long?)
..He [Prof Ngaire Woods] wonders whether the combined cost of foreign wars and domestic bail-outs is being seen as "a burden too far" for the US.
But for the dollar to lose reserve currency status would end what has been in many ways a huge bonus for the US.
It is sometimes described as the ability to write cheques that no-one ever cashes.