How far can the dollar fall ?

[Maciamo]

After reading this article from The Economist, I wondered whether two things might not further the collapse of the American currency :

1) so far the US dollar has been the main reserve currency of central banks around the world. This has started to change with the creation of the euro, but the US$ still represent the lion's share of those reserves. If this dramatically changes and most countries decided to use the euro instead, wouldn't the dollar fall far below half of the euro's value (1 euro for 2 dollars) ?

2) if China unpegs the yuan from the dollar, and the yuan rises, this would make Chinese-made products more expensive in the USA, but probably won't have so much influence on American consumption, as most of the daily-life American brands are made in China nowadays. This means that American companies might have to cut a bit on their profits if they want to keep the prices stable, but the trade balance deficit will further increase between the two giants, as the same amount of material imports will translate in higher imports in US$. Therefore, more US$ will be sold to purchase Chinese products, and the dollar will continue to fall to new records.

If these two things do happen, and nothing is done to counter their effects, I wouldn't be surprised if we reached exchange rates of 1 euro for 3 dollars in a decade or so (well, in fcat depending on how fast central banks replace the US$ and when China decides to unpeg the yuan).

[Mycernius]

You forgot to mention that oil prices are currently in dollars. Iran has threatened to change to the Euro and Saddam said he favoured it as well. That would really screw up the US dollar if oil prices were in Euros.

[Strettger]

Thing is, Saddam decided to actualy move to the Euro in 2003.

Lets remember how that turned out....