'No realistic alternative' to dollar as world's reserve

There is still no realistic alternative to the dollar as the world's foreign exchange reserve currency, it has been claimed.

Despite the volatility of the global currency market in recent months, suggestions that other currencies could replace the dollar as the world's foreign exchange reserve currency are wide of the mark, said Michael Woolfolk, a senior currency strategist at The Bank of New York-Mellon.

Speaking to the Guardian, he explained that recent suggestions that Russian or Chinese currencies could overtake the dollar because of the recent turbulence in the foreign exchange markets were largely about "power politics", as other countries test the new Obama presidency's strength.

Experts have warned that the dollar could fall to 40 per cent of total foreign exchange reserves over the next decade, down from its current position representing 65 per cent of reserves.

However, Mr Woolfolk said it is likely that the dollar would stabilise at 40 per cent of total foreign exchange reserves, ensuring it remains the top reserve currency.

The global recession that hit with the banking crisis last October has caused significant turmoil in the financial markets and has seen currencies suffer significant dips in value as a result, with the dollar and sterling both badly affected.

By Paul Jarvis