Likelihood of a New Reserve Currency Reduced

Ever since the subject of a new global reserve currency was broached earlier this year, there have been simmering conversations about the possibility. However, most of the G8 nations dismissed the notion as ridiculous back then, and the nations are still dismissing it now, ahead of this week's G8 summit.

Even China has backed off, making noises about how it supports the U.S. dollar for now. GFT's Kathy Lien comments in FX360 about how the U.S. dollar is likely to retain its supremacy for now:

Speculation about a new reserve currency being discussed at the G8 meeting later this week is also cooling. China’s flip flopping threats about the dollar is more bark than bite, especially since they have been backtracking on their own comments on a daily basis. G8 leaders have no interest in talking down the dollar because now is not the right time to experiment with reserve currencies according to a G8 source.

Of course, just because there is no desire to change things now does not mean that the desire won't manifest itself later. China has quietly been arranging for the yuan to be used in currency swaps, and recently, BRIC nations began discussions of how to diversify their own holdings. While a new reserve currency may not be immediately forthcoming, if things don't change for the U.S., it is possible that we could see one in the next two or three decades.