by Roman Y

Created on: November 12, 2009   Last Updated: December 15, 2009

At the moment there are more reasons to believe that the US dollar will continue to stay low. Interest rates are likely to stay low for a long time. Supply of US dollars in the market is enormous. Many economic areas, such as employment and real estate, are still under pressure. And to top it all off, there has been a lot more talk about replacing the US dollar a reserve currency or currency of choice than any other time before. Some are even looking towards gold to protect against the falling dollar.

However, I believe the United States government understand that having US dollar as currency of choice has been one of the reasons for the US being the economic power. America does not really want that power to go to the Chinas of this world, because unfortunately there is not much America can offer these days.

I know that this might be considered as one of those conspiracy theories, but here is what I think. As already mentioned, America understands that having the US dollar as a currency of choice, gives it a certain amount of power. The trip to China that President Obama has embarked on, may have some close door discussions about China helping America retain the currency power.

I think there will be some sort of you scratch my back and I will scratch yours. However, those 'exchanges' would not be made public. Think about it. Who else in the world is powerful enough to help America out of this economic 'funk'? The same country that has helped the US government avoid bankruptcy, China.

China has a lot of cash and it has been using it to invest in US government bonds. God forbid they sell, US government may have to go bankrupt and its currency will lose a lot of value. At the same time, I doubt China is happy with current return potential of its investment in the US.  There was an interesting comment from Treasury Timothy Geithner the other day, where he suggested that stronger US dollar is preferable.

It did not get a lot of publicity but people, powerful people like Geithner, do not just come out and say things they do not mean. I suspect that there is something brewing in the 'back yard' and once it is ready, it will be made public and the US dollar will stabilize and gain a bit of ground back.

It needs to be said that perhaps a very strong US dollar is also not good for the US economy. Many big US companies have been expanding overseas and much of their income comes in the form of different currencies. So it is kind of a pickle. But once again, I suspect that the US dollar is about to change its sliding course, even if it is not a China factor.

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