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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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2. When "Black Gold" Is No Longer Quoted in Greenbacks

Middle Eastern nations and members of the Organization of the Petroleum Exporting Countries (OPEC) finally couldn't contain themselves any longer and leaked information a few weeks back that they're pursuing a non-US-dollar trading basket as a replacement for the current US-dollar-traded oil markets.

We've been forecasting this for some time. The difference this time around is that the Middle Eastern nations are now all but openly in cahoots with China, Russia, Japan, and France -- all of whom the United States continues to blithely believe it can outmaneuver.

While the meetings have been held in secret, my sources in Hong Kong and the Persian Gulf region suggest that the move is imminent and that the establishment of an independent trading market is all that's keeping us from a day in which oil prices are no longer quoted in dollars. Oil will instead trade in the combined basket using currencies from the nations I just mentioned. Led by China and potentially -- although this is a big leap -- tied in good measure to the yuan.

As a side note, this may at least partially explain the rise in gold prices as enlightened traders begin to hedge the dollar's ultimate demise. This makes sense for two reasons:

  • First, China uses oil in an incrementally greater proportion than the United States because it remains less energy efficient. That means that China will take in an increasingly larger percentage of world supplies.

  • Second, gold is the only "currency" that's potentially liquid enough to serve as a transitional store of value until the new currency basket arrives. Pun absolutely intended.


Incidentally, you can expect Brazil and India to join the party shortly, leaving the United States even further out in the cold. And while we're at it, my guess is that the new oil markets will be based in Shanghai, and not in New York or Chicago.

Watch, too, as the United Kingdom is dragged, kicking and screaming, to the euro because it will have no choice but to abandon the US dollar.

3. US Firms Are Already Adopting a China Focus

While ostensibly supporting the recovery here, major US companies are already looking at what it will take to list their shares on China's stock exchanges. Although I've been following this story for at least two years, it's received almost no attention in the US news media. When it does happen -- and it will -- this will be one of the biggest wake-up calls yet for those Western investors who refuse to acknowledge Asia's economic ascendancy.

I'm not talking about fringe companies here, either. I'm talking about stalwarts like Walmart Stores Inc. (WMT), The Coca-Cola Co. (KO), and General Electric Co. (GE), to name just a few. In short, companies that US investors view as American as apple pie are pushing to be viewed as Asian as quickly as possible.

I originally thought this wouldn't happen for five to seven years (which is still faster than most investors believed possible). Instead, I give this shift 12 months to 24 months, at most, before we see the first listings.

The fallout from this will be considerable. The historic financial centers of London and New York will take yet another step to the sideline as new Asian markets emerge.

To some, this will sound like scary stuff. But uncertainty breeds opportunity. And savvy investors will welcome the changes because there will be a fascinating fallout that almost no one is talking about.

The emergence of Asia as a true global financial center will make it so much easier to raise capital in that part of the world. All this new Asian capital will likely lead to a new golden age of investing -- certainly in Asia, but also in the United States and Europe to the extent that companies that pursue these listings will have new-found sources of capital to buttress their balance sheets.

Not all companies will be regarded equally, however. For investors, the best choices will be those companies that can immediately use the money they raise through Chinese offerings to enhance their global operations, increase worldwide sales, and cement their relationships with sources of Asian capital.

So if there's one key takeaway in all this, it's this (to paraphrase the words of American writer Ruth E. Renkel): "Don't fear shadows -- they simply mean there's a light shining somewhere nearby."



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