The world's major economy is caught in a vicious circle as the dollar plunges and the financial market crashes, and the Federal Reserve is powerless to halt the collapse of dollar value since rate cuts will only lead to further decline in the value of the currency. Besides, rising oil and food prices are inflicting additional harm.

For more than half a century, the US dollar has enjoyed a unique privilege in the global economy. The US dollar has been the world's dominant currency in most transactions and the repository for the national savings of many countries. However, the once-unchallenged world hegemony of the dollar is under threat as its decline has impelled many emerging economies to diversify their holdings beyond dollar. An endlessly weakening greenback has global repercussions. The decline in dollar value has contributed to a surge in the cost of raw materials which are priced in the US currency; from oil to corn and copper prices have touched historic highs. With the world's dominant economy's debt spiraling higher, the trade deficit exceeding $700 bn a year, and its currency plunging for years, the US government in an anxious bid to attract investment, has been forced to cut spending and cut interest rates at regular intervals to 2%. However, economists have urged the Federal Reserve to stop the rate cuts, arguing that rate cuts are doing little to reduce borrowing costs but have sent commodity prices soaring, fueling inflation and hitting Americans' wallets hard.

With the dollar's 45% drop in value against the euro in the past six years, there is a growing debate on the future of the greenback's reign as the global reserve currency, a position it has held since 1945. While most economists have predicted the role of dollar as a reserve currency is nearing its end, others have even said that euro will supplant the dollar. Given the dollar's role as a medium of exchange and store of wealth, the dollar's premier status as the mainstay of global financial transactions is under threat.

The negative implications of the declining dollar's value are obvious in the rising prices of all primary products, the consequent strengthening of inflation pressure globally, the confusion in the settlement of international transactions, etc. For instance, Chinese textile exports have begun to shift to euro-currency markets and British pounds to avoid foreign exchange losses. Likewise, Russia, the world's second-largest oil-exporting nation after Saudi Arabia, has begun modest efforts to trade Russian Ural Blend oil, the country's primary export, in rouble. Besides, the dollar's weakness has been bad news for consumers.

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