Where is the US dollar heading?

The US dollar is currently the world's major reserve currency. Can it hang on to this status? We examine the writer's argument.

Source: The Straits Times, 15/5/9, p.A18
Headline: Losing purchase: Greenback's future
Writer: By Nouriel Roubini

Quote1
Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined -- and the pound lost its status as the main global reserve currency -- when Britain became a net debtor and a net borrower during World War II. The US is in a similar position today. It is running huge budget and trade deficits. ... The resulting downfall of the dollar may be only a matter of time.

Comment1
Here is the argument:

Reason: Britain net debtor, pound stops as reserve currency. US becoming net debtor.
Conclusion: Hence, US dollar will stop as reserve currency.

This is an argument from similarity, and will hold only up to the point of dissimilarity. There is no indication of dissimilarity. The argument holds.

Quote2
But what could replace it? The British pound, the Japanese yen and the Swiss franc remain minor reserve currencies. Gold is still a barbaric relic whose value rises only when inflation is high.The euro is hobbled by concerns about the long-term viability of the European Monetary Union. That leaves the yuan. ...

Comment2
All alternatives to the yuan are not suited to be a reserve currency -- for vaious reasons. That leaves the yuan. This is a negative argument, that is, by elimination.

Quote3
China is a creditor country with large current account surpluses, a small budget deficit, much lower public debt as a share of gross domestic product than the US, and solid growth. ...

Comment3
China is a creditor country. That follows the argument from similarity in Comment1. The other factors mentioned here are not obviously relevant to the argument. This is a positive argument for the yuan becoming a reserve currency.

Quote4
At the moment, though, the yuan is far from ready to achieve reserve currency status. China would first have to ease restrictions on money entering and leaving the country, make its currency fully convertible for such transactions, continue its domestic financial reforms and make its bond markets more liquid. It would take a long time for the yuan to become a reserve currency. ...

Comment4
There are other necessary conditions to be met before the yuan can be a reserve currency. These necessary conditions are asserted, not argued for. [Meanwhile, the US dollar remains the only major reserve currency.]

Quote5
This decline of the dollar might take more than a decade, but it could happen even sooner if the Americans do not get their financial house in order. The US must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles. Americans need to shift their priorities. This will entail investing in their crumbling infrastructure, alternative and renewable resources and productive human capital -- rather than in unnecessary housing and toxic financial innovation. This will be the only wayto slow down the decline of the dollar, and sustain America's influence in global affairs. ... NYT.

Comment5
"Rein in spending and borrowing" seems in line with making US less of a debtor nation, which follows the model in Comment1. All the other measures do not seem to follow this model. No other argument is offered to support them -- they are merely asserted. Thus, it is left to the reader to simply agree or disagree.

END