THE dollar is again at a crossroads. It is facing renewed pressure from emerging market currencies and the euro.

It has fallen to a 15-month low against a basket of major currencies, has been weighed down by very low US interest rates that may stay low for some time, and has caused investor jitters due to a rising US budget deficit ($485.2 billion for the first three months of 2009 alone), prompting renewed calls for an alternative to the US dollar as the world?s reserve currency.

Part of the story is that 65 percent of the global reserves are in dollars, 25 percent in euros, and more than two-thirds of the world?s US dollars are held outside the United States.

US Treasury Secretary Tim Geithner assured the world that the Obama administration favors a strong dollar.

But they have yet to walk the talk because, as of now, the Fed can?t raise dollar interest rates and the White House can?t reduce the budget deficit anytime soon.

The dollar?s recent slide is causing headaches for policymakers around the world. Asian central banks, in particular, are facing the dilemma of allowing their currencies to appreciate against the dollar or continue keeping the bulk of their FX reserves in US dollars.

If the dollar weakens particularly against Asian currencies, it could throw a wrench at Asian export-dependent economies because their shipments, except those of China, will become expensive. China meanwhile has maintained its policy of pegging the yuan to the dollar, which essentially hurts export-dependent economies of some Asian countries. An undervalued yuan or renminbi makes Chinese products cheaper abroad.

Some countries have already taken steps to moderate the rise of their currencies against the dollar. Brazil has recently imposed a 2-percent tax on foreign investment inflows to arrest the Brazilian real from further appreciating against the dollar.

Canada and Japan plan to buy more dollars to address the dollar?s decline against their own currencies. Thailand has spent about $15 billion so far to prop up the US dollar.

It hasn?t always been this way, but the interventions of the past few weeks indicate a defensive move to prevent the dollar from depreciating further.

As concerns for the slumping dollar escalate, gold suddenly has become another option by which a nation can diversify its reserves portfolio. India?s recent move to sell dollars ($6.7 billion) for gold was considered a strong signal that the dollar composition of international reserves of many nations may be in line for some major shifts.

Other central banks that have done the same move are China, Russia, Mexico and our own, the Philippines.

Investors in US dollar-denominated assets got a scare when China?s Central Bank Governor Zhou Xiaochuan proposed a greater role for Special Drawing Rights, the IMF?s in-house unit of account, as a super sovereign currency. His call has made dollar bulls quake in their boots.

Since China knows well its exposure to dollar risks, its pronouncement could be considered a simple risk mitigation move, a sort of red herring approach, considering that China refuses to let the yuan rise against the US dollar.

China holds about $800 billion US treasuries and continues to buy record amounts of US government bonds, making it the biggest creditor of the US government. In short, US gets the toys, China gets the dollars.

The US dollar composition of China?s foreign reserves is estimated to be as much as 70 percent of the total, which is about $2.13 trillion.

On the upside, a recent report from the 2009 strategic survey of the International Institute for Strategic Studies in London pointed out that ?the vivid message of the financial crisis was that America continues to be of vital importance to other countries, including its putative rivals as pre-eminent powers.?

The study advanced the view that ?America?s banking system may have been paralyzed and all but bankrupt, but the crash showed the enormous resources that the United States could bring to bear to deal with the situation.?

This view, however, is increasingly under threat.

The global financial market, after getting battered from pillar to post last year, is showing some rallies, the flicker of hope hasn?t given way to fear.

In a sense, as the dollar weakens and gold price moves higher, the perception is that it?s now a bear market for paper currencies and a bull market for gold.

Yet for all the strident rhetoric, central bankers are not giving up on the dollar. They?d rather err on the side of caution given the fact that their respective economies aren?t out of the woods yet.

FX traders also say the dollar?s reserve status is unlikely to change any time soon because, at the end of the day, when it?s all about risk aversion, the US dollar remains the world?s safest currency at the moment ? unless this is just a big dog and pony show put up by China and the United States.

(This article reflects the personal opinion of the author and not the official position of the Management Association of the Philippines. The author is director for trust at ATR KimEng Capital Partners Inc. and co-chair of the Capital Market Development Council. Feedback at map@globelines.com.ph For previous articles, please visit .)