No. of Recommendations: 6
Actually, becoming a reserve currency allows the gov't/Fed to borrow substantial amounts of money to supply the bonds which nations keep in their reserves. The strength of the currency is more a factor of interest rate. While partially related to the size of the demand for bonds, it is also a function of Fed policy. If, for arguments sake, the Chinese RMB became accepted as a reserve currency at 7% at the expense of the USD, the effect on the US would be inflationary as a pile of bonds come on the market and would allow the Chinese to "print" a huge amount of money without facing the inflation it would otherwise bring. While it might strengthen their currency, the ability to trade directly in RMB, rather than USD might more than compensate for that.

Jeff
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