Intimations of the dollar’s demise are premature. Prime Minister Manmohan Singh was right to say so and it was a clever way to announce his arrival in Washington DC. Nothing has sent the US capital into a greater spin than nervousness about the dollar’s future. Purists may argue that politicians should not be wasting their time speculating about a currency’s future. But in talking up the dollar, Manmohan Singh was only stating the obvious. That, as he put it, as far as one can see, right now there is no substitute for the US greenback. In some distant future there may be, but that future is a long time in coming. By stating the obvious, Dr Singh has clearly warmed the cockles of his hosts’ heart. Nothing worries the US President more than the prospects for the US economy. Dr Singh was also right to underscore America’s innate resilience and entrepreneurial energy, and state that the US has not yet entered an “era of irreversible shift” in its strength. With a glint in his eye, the prime minister was telling his TV talk show host, author of a book entitled The Post-American World, that the global currency markets have at least not entered, nor are they anywhere near doing so, a post-American era.
The debate on the dollar’s decline was partly triggered by developments in the currency markets, but partly also by the growing assertiveness of the Chinese yuan. Persistent global imbalances, on the one hand, and the multilateralisation of the Chiang Mai Initiative, on the other, have contributed to the dollar’s nervousness. It is clear that no other currency is presently anywhere near replacing the dollar. Even the idea of making the International Monetary Fund’s Special Drawing Rights (SDR) emerge as an alternative global asset and unit of exchange is fraught for many reasons. Apart from the fact that the SDR itself is largely valued in US dollar terms, neither the euro nor the yen, not to mention the yuan, has the kind of global acceptability as the US dollar. While economists and market analysts will continue to remain focused on the movements of the dollar, the politician in Dr Singh has correctly opted to remain focused on the prospects for US power and performance. Neither is set to diminish in the near future. Hopefully, his American hosts will also take note of what the prime minister had to say about the Indian economy. His assurance that India would remain open to massive external equity flows — especially in infrastructure — in its drive to boost growth, offers opportunities for increased US investment. It remains to be seen if Dr Singh’s hosts will be as generous as he is willing to be.