The buck stops here

The mighty greenback is an American icon whose value comes in part from the fact it’s one of the most recognized brands in the world. For decades, as the international reserve currency, it has fueled growth, allowed countries to do business, enabled globaliization on an unprecedented scale, whilst simultaneously playing an unwitting ambassador for America around the world. More than that, it has deep emotional resonance. It has had elegance and unique beauty combined with myth, legend, adventure and mystique.

But as with all brands, image is no longer enough. For a range of reasons, including debt, the reality behind the dollar brand has been sullied. And now it looks as though the greenback is going out of style.

Just take a fleeting glance across an array of media and you’ll groove to a hip hop music video with Jay-Z clutching a handful of euros, read news that middle-eastern countries plan to move to euros as their reserve currency, hear about Iran’s Ahmadinejad mocking the dollar as a worthless piece of paper, learn about supermodel Gisele publicly refusing payment in dollars, and be in disbelief to know that even international drug dealers are preferring to do business in the euro.

Clearly, as this trend demonstrates, trust is an essential ingredient of all brands and their reputations, including currencies. The notion of trust (in the commercial world) has been mainly centered on the transaction itself, but not any more. It has dramatically moved on from trust in the product (or dollar in this case) to trust in the people behind the product.

So will the Fed reverse the dollar’s fall from grace and reassert its global role as the world’s reserve currency? Or does it acquiesce to domestic pressure, relieve credit-crunched Americans, and fuel investors’ desires for increased corporate profit? It’s a crunch time for the dollar, both as a currency and as a brand. As Churchill once said, ‘It’s only when you risk losing what you can least afford to lose that you learn to play the game’.

14 January 2008, posted by Dean Crutchfield