If dollar inflation, of the magnitude some are predicting, actually becomes reality, the utility of the dollar as the reserve currency could quickly disappear — basically as a result of US government policies.

Beyond inflation, other threats to the dollar would include protectionist measures being suggested by the Obama administration.

However, both dollar inflation and US protectionism are still potential rather than actual. The popularity of the current administration on a variety of economic issues is waning daily. If this trend continues, it is possible that more reasonable economic policies could prevail and that the danger of extreme inflation could pass. Cancellation of spending projects, not yet initiated and aggressive anti-inflation measures, like raising bank reserve requirements, could reduce the threat of inflation.

At the same time, there are those who now fear deflation, rather than inflation.

Bilateral agreements between governments are, in my opinion, unlikely to compete with the free market preferences of exporters regarding settlement currencies, especially when the actual volume of cross-border holdings of specific currencies in the hands of potential importers are taken into consideration.

That is why I think that it is a little too soon to write off the dollar … but this is not to say that a realignment of the concept of an international reserve currencies could not come about during the next decade.