A few months ago, leaders of the Arab oil producers, China, and Russia met to discuss using a different currency to trade oil. The US was not invited to the meeting nor even told about it.
China has been dumping Dollars for nearly a year.
The Dollar price for gold is an inverse indicator of its value.
Until recently, the Dollar has been the undisputed world's 'reserve' currency, the standard for international trade. Because oil and many other commodities are priced in dollars, foreign banks must hold reserves of Dollars to effect such exchanges. Because we have been printing Dollars at the rate of trillions per year for the last few years, foreign banks and nations have lost faith in its continued value. As Wayne Brown indicates, the Dollar value is a matter of faith, faith in a responsible backer of the notes. Our recent folly and disrespect for the Dollar and its foreign holders has shaken that faith.
If oil was not priced in Dollars, we would now be paying about $6-$8 a gallon, and comparable higher prices for cotton, sugar, and most items sold in Wal-Mart (made in China). If China, Russia, and OPEC decide to use a different currency for oil exchanges, it will be the end of the Dollar as the world’s reserve currency and devastating to our economy.
Foreign countries are watching our political process as we are about to increase our debt ceiling. If we do not also present a realistic plan to bring our budget into balance, there will be substantial pressure for the world to move to a more stable currency for its reserves. The next few months will be all telling. The US is still the world’s greatest economy, but if we don’t respect our own promissory notes (what the Dollar actually is), we can’t expect other nations to do so.