With the rising fiscal deficit of the United States, estimated to be $1.8 trillion this year and $1.2 trillion next year, there has been some discussions on an exit strategy for countries (China?) with large dollar holdings and a search for an alternative international reserve currency. The accumulated Federal debt of $15.1 trillion and the continuing economic woes of the United States have added to the pessimistic outlook for its currency.

Many Filipinos who depend on export sales to the United States or on overseas remittances in US dollars are now apprehensive about holding on to the currency.

A recent article of John Waggoner in USA TODAY, is instructive. He argues that the absence of another alternative reserve currency will ensure that the dollar will continue to be held by many central banks. The Chinese yuan, the British pound and the Japanese yen which had been considered as potential alternatives to the US dollar have their own problems. The Chinese yuan “is still pegged to the US dollar and is not fully convertible to foreign currencies.”

The British pound which took all of 60 years to lose its reserve currency status may not be able to stage a comeback considering that Britain has an even higher debt-to-GDP ratio that the United States. Japan’s debt-to-GDP ratio is nearly 100 percent and its economy shows no sign of recovery given the added political difficulties of its present government.

Some of my friends who have invested in gold certificates are hopeful that the global economy can revert back to gold. However, there’s not enough gold to handle the world’s $60.6 trillion of Gross Domestic Product. Waggoner cites that “Mankind has mined about 161,000 tons of gold, which are worth about $5.7 trillion at today’s prices, less than half of the US GDP."

The financial markets are still voting for the United States, as borne out by the March 8 auction of $138 billion in Treasury bills, of which about $29 billion was new debt. Waggoner characterizes it as an “astonishing success” since investors bided $4.27 for every $1 of debt for sale resulting in a rock bottom yield of 0.15 percent. The Economist’s February 27th economic and financial indicators had the US 3 months at 0.16 percent in contrast to Britain’s 0.65 percent, Japan’s 0.30 percent, Euro area’s 0.66 percent and China’s 1.94 percent. For developing countries, Indonesia’s financing costs had plunged from 12 percent eleven months ago, to under 6 percent in early January. In the same period, the Philippine government issued a dollar-based bond carrying an interest rate of 5.7 percent compared to the 8.4 percent effective rate of its outstanding bonds a year ago. While costs of sovereign debts have gone down, the attractiveness of dollar debt of the United States is still paramount.

For the Philippines, it would seem that staying with the dollar makes a lot of sense. However, I believe that as China becomes the more important trade partner of Philippine business because of the ASEAN-China Free Trade Agreement and as more Chinese investors from the mainland seize business opportunities in natural resources development, the Chinese yuan should be given greater significance.

Popularizing the yuan, increasing the familiarity of Filipinos with the currency and making it more convenient to transact bilateral trade with the yuan would be in the best interests of the Filipino people and the Philippines. Hold on to the dollars now, but start accumulating the Chinese yuan.

Business Bits. As a senior citizen, I am grateful for the benefits to the senior citizens, especially the recent exemption from the VAT. I am therefore drawn to the SENIOR CITIZENS PARTY-LIST, with its tagline, “Tuloy ang Biyaya, May Parating Pa!” and more so that their second nominee is Atty. David Kho, a fraternity brod in Pan Xenia.