U.S. Dollar May Lose Reserve Status: center of economic activity shifting from the West to the East

U.S. Dollar May Lose Reserve Status in 20-30 Years (Update1)

By Cherian Thomas

Nov. 9 (Bloomberg) — The dollar may lose its position as the global reserve currency as Asia moves to replace the U.S. as the driver of world growth, said Rajat Nag, managing director of the Asian Development Bank.

“The process has already begun,” Nag said in an interview in New Delhi today. “India’s move to buy gold is a reflection that the Reserve Bank of India is thinking of diversifying its reserves and that is appropriate.”

India bought 200 metric tons of gold from the International Monetary Fund last month for $6.7 billion as other central banks show interest in spreading their holdings to protect against a slumping dollar. China, the world’s biggest gold producer, has increased reserves of the metal by 76 percent to 1,054 tons since 2003, Hu Xiaolian, head of the State Administration of Foreign Exchange, said in April.

The IMF sale to India accounts for almost half the 403.3 tons that the Washington-based lender in September agreed to sell as part of a plan to shore up its finances and lend at reduced rates to low-income countries. Russia, China or Brazil may buy the rest of the IMF gold for sale, according to James Moore, an analyst at TheBullionDesk.com.

“The dollar for quite some time will be an important reserve currency,” Nag said. “Over time, central banks should start to look at a mix of euro, yen, renminbi and possibly the Indian rupee. That is only to be expected with the center of economic activity shifting from the West to the East.”

Oil Producers

Nag said this process wouldn’t happen “dramatically,” but possibly over the next 20 to 30 years.

Saudi Arabia, a key U.S. ally, pegs its currency to the U.S. dollar like most other oil-rich Gulf nations, and has resisted calls for a move away from the greenback in oil pricing as the U.S. currency lost value in recent years.       CONTINUED HERE.