WASHINGTON, Jan. 17 (UPI) -- The almighty dollar is not nearly as mighty as it was. The upstart new currency of the euro is eating the dollar's lunch. The value of euro banknotes now in circulation is greater than that of the greenback, roughly $800 billion worth of euros to $759 billion of dollars. This may not be entirely an achievement to be proud of; the 500-euro note has become a firm favorite with drug dealers, money-launderers and other unwholesome types.
But rather more unalloyed good news for the euro is that for the second year in a row, more international bonds were floated in euros than in dollars. The change has come quickly. Just five years ago, according to the International Capital Markets Association, the dollar accounted for 51 percent of international bonds, and the euro for just 27 percent. But last year, the euro had jumped to 45 percent of the market, worth $4,836 billion, leaving the dollar with just 37 percent, or $3,892 billion.
Some more evidence of the dollar's woes came from Russia this week, where the Public Opinion Foundation's report, "The Dollar in Russia," concluded that "in recent years the dollar in Russia has lost significantly more in prestige than in real exchange value."
Compared to a 2002 poll that showed 35 percent of Russians trusting the dollar more than the ruble and the euro while 37 percent said they preferred it, this year's poll of 1,500 respondents in 100 Russian cities found 63 percent saying they trust the ruble most of all, while only 5 percent trust the dollar and 15 percent the euro.
Well, money isn't everything. But there have been some other humbling indications for the United States in recent years, not including the embarrassments in Iraq. After the latest deal over the weekend between China and ASEAN (the Association of Southeast Asian Nations), the United States and its North American Free Trade Agreement partners will no longer be able to claim they are part of the world's largest free trade grouping.
The most striking development is the way that the United States is losing its traditional dominance of high technology. In 2002, for the first time, it lost its traditional surplus in the trade of advanced technology goods. In 2004, it lost its usual surplus in trade in advanced technology goods and services -- that is, the deficit in technology products was larger than all the U.S. income in royalties, licenses, fees and franchise payments in technological services.
According to a report from the Organization for Economic Cooperation and Development, spending on research and development in China is rising by over 20 percent a year, but only by four percent in the United States. This suggests that China's investment in R&D is heading to overtake that of Europe within four years and that of the United States within seven years.
Then we have some striking projections from the Economist Intelligence Unit, which looked at current economic and business trends and reckoned that China would have a larger GDP (gross domestic product) than the United States within thirteen years, at least as measured by purchasing power parity.
By 2020, the EIU estimated China's GDP would be $19.4 trillion while the United States would be $19 trillion and the European Union just under $18 trillion (unless by then it had enlarged to include Turkey, which would probably take it to parity with the United States). India trailed behind at $9 trillion, Japan even further behind at less than $5 trillion, and Russia and Brazil brought up the rear of the global great economic powers with $2.5 trillion each.
GDP at purchasing power parity is not like GDP as measured in the real world of global markets, where the dollar value is what counts -- although on the dollar count, the EU already has a larger GDP than the United States, which will still be one of the world's richest countries in 2020 while China will remain a middle-income country, since its growing wealth has to be shared among a population that should by then be close to 1.5 billion. This means that the average American will have an income four times higher than the average Chinese.
Moreover, projections and estimates are not very reliable tools of prediction, and we all know what happened to those forecasts of the late 1980s that Japan would soon be Number One, or that Fortress Europe would soon bound ahead of sluggish America. And bear in mind that for all the grandiose assessments of the rise of China, the country currently accounts for less than nine percent of global manufacturing output, and North America accounts for 25 percent. And the U.S. economy has traditionally proved rather good at responding to threats and challenges.
The question is whether the United States can retain that fast-footed flexibility which allowed it in the 1970s to overcome the oil price rise and the great inflation by letting its old industries like the steel mills wither, while it invested in growing the new industries like computers. The U.S. economy did the same in the 1990s, defying predictions of being overtaken by Japan to develop the Internet and new giants like Microsoft and Google.
But remember how that was done. In the 19th century, the United States prospered by becoming the world's farm, the source of cheap food. In the first two-thirds of the 20th century, it prospered by becoming the workshop of the world, the place that pioneered the assembly line. And in the last thirty years, the United States has prospered by becoming the world's graduate school, its main source of intellectual capital and its fount of ideas and innovation. But we all know what happened to the number of foreign students after 9/11, when the welcome mat that used to be there for the world's ambitious young brains was suddenly replaced by the Patriot Act.
There are some ominous trends under way that threaten that lonely eminence of economic, technological, political and cultural leadership that the United States has enjoyed in the 15 years since the Cold War ended and the Soviet challenge imploded. "Enjoyed" might not be the happiest word to describe the American experience in that brief decade and a half. But Americans might not much enjoy the world that is evidently coming, of a rough economic and technological parity with China and Europe, a world in which the almighty dollar no longer rules.
