First China, Now Zambia - If This Keeps Up It Won't Be Long Before the Greenback Turns Yellow

August 13, 2012 3:18 PM EDT
Citing a WSJ report that African countries are banning transaction in the U.S. dollar, today Richard Bove of Rochdale Securities warned to take the threat seriously.

"One might not think so but this is a very dangerous development for the United States," said Bove. "If Africa can spurn the dollar, how long before others follow the same policy? As country by country moves away from the dollar, it gradually losses its international standing and with it the United States will find itself in a position whereby it must repay its debt. Printing dollars will not work."

Countries that are successful in ditching the U.S. dollar benefit because it forces monetary expansion of the local currencies. It also pushed local currency prices higher, reducing inflation and increasing buying power.

As far as the U.S. is concerned, it will lose benefits associated with being the world's reserve currency, which includes lower commodity prices, lower interest rates, and the ability to print money.

"America is increasingly the 'hollow man' of global finance since it runs a huge national deficit and a huge trade deficit. The loss of the reserve status will obviously impact this country meaningfully. This loss will not come as a result of some grand event but rather as T.S. Eliot might have said 'not with a bang but a whimper'," warned Bove.

That whimper may begin in Zambia, of all places.

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