Finally, there is the danger that the dollar's safe-haven status will be lost. Foreign investors—private and official alike—hold dollars not simply because they are liquid but because they are secure. The U.S. government has a history of honoring its obligations, and it has always had the fiscal capacity to do so.
But now, mainly as a result of the financial crisis, federal debt is approaching 75% of U.S. gross domestic product. Trillion-dollar deficits stretch as far as the eye can see. And as the burden of debt service grows heavier, questions will be asked about whether the U.S. intends to maintain the value of its debts or might resort to inflating them away. Foreign investors will be reluctant to put all their eggs in the dollar basket.The recent fiscal cliff fiasco and the current debt ceiling and platinum coin issues make me wonder if Eichengreen's prophesy is coming closer to fruition. So I started by looking at the exchange rate of the dollar against some other currencies from 2011 onwards. I chose the Canadian Dollar (blue line) and the Australian Dollar (green line), since the IMF recently declared them official reserve currencies, and since they are not as contaminated by recent events as the Euro and the yen. Look at the very far right of the graph, and you see both series drop down. That means that the dollar lost value relative to those currencies. One U.S. dollar can buy less Canadian or Australian dollars than before. In other words, the U.S. dollar got weaker.