The dollar is falling, but not the sky

Before one starts composing a eulogy for the U.S. dollar, it pays to make two distinctions: 1) There's a difference between the dollar's decline and a collapse. 2) Any move away from the dollar as the world's reserve currency must include a credible replacement for it.

True, the dollar on Wednesday did weaken to a 14-month low versus the euro, to $1.4913, but investors should keep in mind that this comes after the dollar had risen about 20% versus the euro, pound and yen from mid-2008 to March 2009. Further, as Financial TimesColumnist Martin Wolf points out, little occurred during the financial crisis' acute stage suggesting that a credible, universal effort is at work to abandon the dollar. On the contrary, during the horrible period of low banker-to-banker confidence, investors piled into the dollar on a flight to safety, driving its value up during the worst of times.