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America's greatest hope: gradual decline. The American dollar, that glorious symbol of what nobody elsewhere seems to want anymore (Investment News):

Before the euro marked its fifth anniversary Jan. 1, a number of countries demonstrated their trust in the European currency over the U.S. dollar -- a stark contrast to five years ago. The United Arab Emirates, home of the Middle East business epicenter Dubai, said at the end of last year that it would convert some of its reserves into euros from U.S. assets.

That followed Indonesia, Russia, Switzerland and Venezuela making similar moves, and China reportedly is considering a shift in its currency reserves, as well.

Iran and Venezuela also have proposed that the Organization of Petroleum Exporting Countries, based in Vienna, Austria, begin selling oil denominated in euros.

All this occurred as the euro rose more than 11% versus the U.S. dollar last year.

"Why should you invest in the U.S. [dollar] if you are Arab or Chinese or somewhere else in the world if you can in the euro?" asked Axel Merk, president of Palo Alto, Calif.-based Merk Investments LLC and manager of its Merk Hard Currency Fund (MERKX), which invests in a basket of hard currencies. The basket is filled mostly with euros.

For the one-year period ended last Monday, the fund, which was launched in May 2005, climbed 7.14%, compared with a 3.28% gain for the average world bond fund.

"The most positive thing for the dollar is, everybody hopes that its decline will be slow and gradual," Mr. Merk said.

And, in our infinite economic wisdom, Americans worry instead about pizzerias that accept Mexican pesos.

{ 9:04 AM }

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