Nation Should Prepare for Changes in Key Currency

It's been some time since the U.S. dollar came under growing skepticism concerning its status as the world's reserve currency.

However, recent foreign reports on some countries' move toward ending dollar dealings for oil trade come as quite a shock. Regardless of the authenticity of these reports, the fact that such stories are circulating points to the inevitable declines facing the U.S. monetary unit.

Come to think of it, however, it would be rather strange if the U.S. currency's status remains unchanged after all the financial turmoil America initiated and the massive printing of new greenbacks nearly halving its value. So the dollar's downfall is not a matter of whether, but of how fast and low.

It would still be too early, of course, to predict the ``demise of the dollar,'' as no other monetary units, including the euro, yen or yuan, have emerged to really replace it as the key currency. Actually, it would be the biggest holders of dollar-denominated debts, namely China and Japan that would suffer greatest from its too steep a plunge. Moreover, the sharp depreciation of the American money would deeply dent the Asian giants' exports to the world's largest market.

However, none of this can deny that another round of the global currency war has just begun over the world's economic hegemony, capitalizing on the faster-than-expected setback of the U.S. economic domination.

It is well-known that the European Union and its former self, the European Economic Commission, was originally designed to keep the then Deutschmark and Germany's economic dominance in the old continent in check. Likewise, the new Japanese government's push for East Asian Union is aimed in large part at checking China's overwhelming economic influence through an Asian Currency Unit, or ACU.

Korea can be no island from these global and regional trends, but the nation seems to remain perilously carefree in part because of its limitation as a middle power at best and because the government has not awakened to the gravity of the issue.

A case in point is the country's seriously unbalanced foreign reserve mix ― 65 percent in dollar with all the other currencies accounting for the other 35 percent. The time has long past for Seoul to diversify not just its foreign exchange composition but also its currencies for trade settlement.

In the mid- to long-term, the government and businesses should ready themselves for a gradual appreciation in the Korean won, which is regarded as remaining at least 40 percent below its fair value against the greenback, meaning the exporters would no longer compete with weak currency-aided price advantage.

More importantly, Seoul will need to wean itself off the U.S.-style economic policies and financial systems, by shifting from export-oriented to domestic demand-led growth and restraining from wayward financial capitalism.

Unfortunately, it appears hard to expect changes anytime soon under this administration, which is anxious to follow the long-outmoded neo-liberalistic economic management model.