In neither scenario does it make sense to hold huge amounts of dollar denominated assets today.

And that raises serious questions about the wisdom of China s massive investments in dollar denominated assets.

Currently, the US dollar remains dominant. Most US exports and imports are denominated in dollars, and the dollar is extensively used in trade that does not involve America.

As a result, holders of dollar denominated assets should be looking forward to two alternative scenarios.

Although the maximum sustainable real interest rate is about 10 , Brazil's dollar denominated debt yields 24.5 .

Although the maximum sustainable real interest rate is about 10 , Brazil's dollar denominated debt yields 24.5 .

One might think that foreign investors would quake in terror at these terms and shy away from dollar denominated assets.

But in practical terms, this effect may be implausible if a high proportion of dollar denominated debt burdens a candidate.

Therefore, foreign speculators should, any day now, dump their dollar denominated assets onto the market, and so bring about the dollar decline that they so fear.

They continue to hold very large positions in dollar denominated assets, which they would not do if they thought the US faced a choice between a cheap dollar and a deep depression.

If rich country central banks can buy long term bonds, then emerging country central banks can buy dollar denominated bonds.

That will sharply reduce the pace of foreign exchange accumulation and cut into China s open ended demand for dollar denominated assets.

Yet the typical investor in dollar denominated assets whether a rich private individual, a pension fund, or a central bank has not taken the steps to protect themselves against the very likely dollar decline in our future.

It also pesofied these holdings, which in mid 2001 amounted to more than 60 of the pension funds' portfolios, in effect converting dollar denominated assets into local pesos overnight.

Is Italian euro debt denominated in local or foreign currency?

By plowing more than two thirds of its mammoth foreign currency reserves into US dollar denominated assets, China has gained significant political leverage.

At the end of 1997, the share of dollar denominated debt in total external indebtedness among the leading EU candidates ranged from 46 in Poland to 78 in the Czech Republic.

A significant strengthening of the dollar would indeed cause serious problems for emerging economies where businesses and governments have taken on large dollar denominated debts and currency devaluation threatens to spin out of control.

Second, the costs of the insurance premium the outsize, largely dollar denominated reservoir of China s foreign exchange reserves have been magnified by political risk.

Back in the 1970 s, there was some limited issuance of SDR denominated liabilities by commercial banks and SDR denominated bonds by corporations.

A financial market heavyweight, it now outperforms the dollar, the yen, and, until recently, the mighty Chinese yuan, while euro denominated bond trading rivals the US market in size.

While China has taken minor measures to slow the increase in its dollar denominated holdings, it has been unwilling to risk a fully convertible currency for domestic political reasons.

These repayments are all expected to happen against the backdrop of a weaker Kenyan shilling and a stronger US dollar, which majority of Kenya s external debts are denominated in.

A rapid decline in the dollar is likely to have a very different impact primarily to impoverish workers whose products are exported to America and investors in dollar denominated assets who see their portfolio values melting away. Dollar devaluation will only secondarily affect Americans who consume imported goods or who work in businesses that distribute imports to consumers.

China's government regards the threat of capital losses on its dollar denominated securities as less important than the need to maintain near full employment in coastal manufacturing cities like Shanghai.

China's government regards the threat of capital losses on its dollar denominated securities as less important than the need to maintain near full employment in coastal manufacturing cities like Shanghai.

Many developing countries have made progress since the 1990 s in shifting from dollar denominated debt toward foreign direct investment and other types of capital inflows, or in paying down their liabilities altogether.

The principal risk I see today is that being borne by investors in dollar denominated debt and I don t believe they are charging a fair price for what they are doing.

It could issue its own SDR denominated bonds.

It would be nice to believe that when the tide of dollar denominated securities ebbs, the flows of finance currently directed at America will smoothly shift course and boost investment in Asia.

And, third, exporters who wish to preserve their share in world markets where prices are largely denominated in dollars choose to keep their dollar prices stable, to avoid falling victim to idiosyncratic exchange rate movements.

Moreover, there may be a financial panic large financial institutions with short term liabilities and long term assets will have a difficult time weathering a large rise in long term dollar denominated interest rates.

The turnaround year, 1989, was marked by the first issue of Brady bonds (dollar denominated bonds issued by Latin American countries), which helped the region to get past the crisis.

Like Mexico, East Asia, and Argentina, America's international debts are largely denominated in US dollars.

The weakening US dollar is pushing the dollar price of oil higher as oil exporters purchasing power in non dollar regions declines.

Because the dollar prices of most of these countries imports are not very responsive to exchange rate movements, the pass through of those movements into import prices denominated in their home currencies is close to 100 .

Domestically oriented macroeconomists look at the situation roughly like this at some point in the future, foreign central banks will become less willing to continue buying massive amounts of dollar denominated securities in order to prop up the greenback.

Bottom Dollar

I found a dollar in the street.

Because SDRs are denominated in several national currencies, no single currency would enjoy an unfair advantage.

Of course, an earlier attempt was made to create a commercial market in SDR denominated claims.

Moreover, this almost certainly underestimates the extent of the losses, because it does not exclude inflows of 3.5 billion since November of last year from auctions of US dollar denominated treasury bills.

Once portfolio investors start selling their dollar denominated securities, a stampede will follow, causing the dollar's value to crash and triggering the first major global financial crisis of the twenty first century.

Sally exchanged a twenty dollar bill for five dollar bills.

Sally exchanged a twenty dollar bill for five dollar bills.