September 4, 2017. Standard & Poor’s historic credit rating downgrade Friday, taking down the U.S. bond rating from AAA+ to AA+ has competitors to the dollar as the world’s reserve currency shouting for a replacement to the dollar, but will it only be shouting?
For the short term, calls for replacement of the dollar as the reserve currency will remain just that, calls. Are investors ready to invest trillions today in the Chinese Yuan? Not likely for several reasons, beginning that just being king of the hill is a major advantage.
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Then where does one go, to the Euro and the Eurozone, that is looking more undesirable every month due to the debt crisis of the P.I.G.S. (Portugal, Ireland, Greece, Spain), and now Italy? Not likely for now.
India is riddled with corruption, Brazil is emerging, Switzerland by itself is probably too small. Britain has it’s own austerity measures in the works. Canada? No, it isn’t likely to happen soon. The dollar is the O.P.E.C. currency as well. What about China?
One major reason investors may be concerned about China is that China may be in store for a real estate bubble. To the Chinese, more so young Chinese today, the possibility of Real Estate values going down, or a bubble, is absurd. Many Americans believed the same think only 5 years ago. The Japanese didn’t believe it in the 80’s.
Further credit downgrades, and lack of more progress on getting the overall debt and fiscal house of the U.S. could change this picture. It will not be fast or easy to change the dollar as the reserve currency for the short term.