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David Merkel takes a look at the dollar’s role in the banking crisis. Since the dollar is the reserve currency of the world, and by definition there can only be one of those, it’s doing much better than other currencies out there. David cites the British pound which has much in common with the dollar, but since it’s not the global powerhouse, it’s getting left behind.

The Canadians just lowered rates. The EU is bringing down rates, though they’re still above most everyone else (which may lead to some intra-continental strife). The Bank of England now has rates at 300-year lows.

In looking at alternatives to the dollar, David asks: “External commodity-based currencies? None that I know of; few governments want to limit their power by tying their hands on monetary policy.”

He’s right. I do wonder why gold continues to be so strong against the dollar. It made more sense before the global economy fell apart, but I’m not so sure now. Is gold ready to plunge, or do gold investors think inflation is about to come roaring back. I suspect the former, but I’m not willing to make that bet.

Posted by edelfenbein at January 21, 2009 1:49 PM