‘That dollar isn’t funny anymore.’’ That’s how economist Stephen Green and his colleagues at Standard Chartered Bank titled a recent report, and their observation was as spot on as any.

The dollar’s swoon has gone from amusing to sobering in Asia, which is at a crossroads with a currency that has long been a cornerstone of its economies. While angst over the rising euro grabs the headlines, the dollar’s about-face may affect Asia more than any region outside the United States.

You don’t have to read the financial pages to see that the dollar’s days of ruling the world are numbered. Keen insights can also be gained perusing gossip columns.

Much interest followed rapper Jay-Z flashing a stack of 500-euro notes in his latest video. The New York native seemed to know what many hedge-fund managers were slow to grasp: Europe’s single currency is in, the dollar is out. Newspapers from Bangkok to Seoul gave the story prominent placement.

Similar intrigue accompanied reports that Brazilian supermodel Gisele Bundchen was a dollar bear. Somehow, Asians didn’t much care that Warren Buffett of Berkshire Hathaway Inc. and Bill Gross of Pacific Investment Management Co. were down on the dollar. Yet reports about the model’s preference for euros turned heads and made headlines in Asia.

“Rappers and supermodels are not renowned for their intellectual or financial prowess, but in fact these examples are more important” than most, says Mark Matthews, Hong Kong-based strategist at Merrill Lynch & Co.

Private flows

Take the case of Thailand 10 years ago. Matthews was based in Bangkok back then and had a firsthand view of the forces precipitating the Asian crisis. It was private capital flows that decided the fate of the currency, not central bankers or politicians. Once rich Thais lost faith in the baht and took their money out, authorities were at a loss to stop the dynamic.

“As was the case with the Thai baht devaluation, we cannot have a clue as to the specifics of what happens if the dollar loses its status,” Matthews says. “Experts say it’s impossible, but that’s the way regime change goes.”

Again, what a couple of celebrities do with their fortunes doesn’t necessarily portend a dollar crash. Yet taken with other signs of the dollar’s waning appeal—including its 14-percent drop against the euro in the last 12 months—such anecdotes are food for thought.

Thickening the plot is Henry Paulson’s benign neglect. The US Treasury secretary is dropping no hints of serious concern about the dollar’s slide. Nor has he proposed a way to get to the bottom of the US subprime-loan crisis and keep it from occurring again.

‘Your problem’

The sense of economic drift in Washington is the talk of Asian markets, and it’s partly why the dollar is losing favor. In 1971, one of Paulson’s predecessors, John Connally, said: “It may be our currency, but your problem.” Few regions of the world may find a dollar plunge more problematic than Asia.

The risks to China alone are daunting. “If the US dollar were to collapse and remain weak on a sustained basis, Beijing would face an intense dilemma,” Standard Chartered’s Green wrote in a report yesterday.

Maintaining an undervalued currency is the key to creating the millions of jobs China needs to maintain stability. That effort will be complicated by the yuan becoming cheaper against the euro and Asian currencies. The resulting trade surpluses would add even more liquidity to China’s economy and increase political tensions globally.

Adjustments

The rest of Asia would have serious adjustment problems, too. The region remains wedded to weak exchange rates, and the loss of competitiveness would be felt from Tokyo to Jakarta. The challenges would increase once Asian central banks begin moving their vast currency reserves out of dollars to avoid losses.

Looked at another way, a shift away from the dollar could be a plus for Asia in the long run. While destabilizing and disorienting, it’s not a given that the dollar’s demise would lead to a global recession. That didn’t happen in the second half of the 20th century when the dollar unseated the British pound.

All this raises questions. Will rampant globalization since then and the increased complexity of investments lead to a bumpier transition this time? What eventually replaces the dollar? The euro? The yuan? A single Asian currency?

Asia’s gain

Even so, as more investors realize how vulnerable the dollar is, their money will need to go somewhere.

“Some of it is going to where there are better growth prospects, namely Asia,” Matthews says. “This has been one of our major investment theses for some time now—that Asian stocks have been going up, and will continue to go up, not only because of what’s happening here, but also because of what’s not happening somewhere else.”

What the dollar’s demise means is debatable. What’s not is that the currency is losing its luster in a region that has long embraced it. Just ask the world’s rappers and models.

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‘That dollar isn’t funny anymore.’’ That’s how economist Stephen Green and his colleagues at Standard Chartered Bank titled a recent report, and their observation was as spot on as any.

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