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Three Reasons the Dollar Will Not Prevail

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It will lose its status as the global reserve currency -- and soon.

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By now, virtually every investor has heard the argument that the US dollar is slated to lose its status as the global reserve currency. And that's good -- as far as it goes.

What's bad is that many of these investors have yet to latch onto the fact that this could happen much sooner than many people realize, and in a manner that will catch most by surprise.

Let's take a look at the three key reasons that this shift away from the US dollar is happening -- and sooner rather than later:

1. The Asian Region Currency Partnership

Japan, once the staunchest of US allies, is leading the charge to form a regional currency partnership based on closer ties between itself, China, and South Korea. Ostensibly part of the second trilateral "leader's meeting" that happened earlier this year, financial cooperation was front and center on the agenda (at Japan's invitation) as a means of coping with the ongoing global financial crisis and with the subsequent resumption of worldwide financial growth. It was also key to the Association of Southeast Asian Nations (ASEAN) discussions that took place this past weekend -- with the waning influence of the US economy again playing a key role in the discussion amongst potential ASEAN trading block partners.

At a time when US leaders are fooling only themselves by pretending this country remains the key player in the health of the worldwide economy, Japan's newly elected Prime Minister Yukio Hatoyama didn't mince words following the trilateral meeting when making such comments as "until now we have been too reliant on the United States" and "I would like to develop policies that focus more on Asia" to press-corps attendees.

Having spent 20 years in the region, I can't say I'm surprised by this development. And you shouldn't be, either. Between China, South Korea, and Japan, we're talking about 16% of the world's gross domestic product (GDP) -- a figure that's growing almost daily, by the way.

There are obviously some significant challenges, given the cultural sensitivities that remain in the region as a result of World War II. But even those are being trumped by today's serious global financial demands. After the three nations met, Chinese Prime Minister Wen Jiabao noted that "we have agreed to seek common ground and shelve our differences."

In a column written from my family home in Japan earlier this year, I noted how important it is to "read between the lines" when investors are attempting to decode English-language statements being made by officials in Japan or China. It's not what's actually being said -- at least, not as Westerners hear it -- that's important. What's been said has actually been shifted a bit by the translator. You really have to go back and make an effort to see just what it was the official actually meant.

Granted, that's not the easiest of exercises. But it does force you to really look at what's taking place -- which will usually give you a much more accurate picture than if you just trust what's said by the Western press.

So Wen Jiabao's statement can be construed as it's "time to get down to business."
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No positions in stocks mentioned.
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