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“The extraordinary loosening of fiscal and monetary policy in the United States is the main reason the dollar’s dominant reserve status is being questioned,” said David Woo, foreign-exchange strategist at Barclays Capital. Many foreign investors fear that the Federal Reserve has been feeding Congress’ appetite for spending and literally printing money to help finance the U.S. deficits.

But while Europeans and the Chinese may eventually want their currencies to enjoy the “exorbitant privileges” afforded by reserve status - including interest-free loans from countries around the world that hold dollars in reserve - no other country is prepared to make the sacrifices needed to displace the dollar at this time, he said.

China, in particular, would have to allow its currency, the yuan, to float freely in global markets - something it has been unwilling to do because of the advantage in trade it gains from pegging its currency to the dollar.

“There are at present no obvious alternatives to the dollar,” Mr. Woo said, but as a result, “U.S. fiscal profligacy” will continue to push the dollar lower and force up interest rates on U.S. Treasury bonds and other securities.

“The U.S.’s ability to obtain cheap external funding for financing its twin deficits is likely to be curtailed,” he said.

Jamie Heighway, market analyst at Custom House, a Canadian investment firm, noted that the dollar ironically has benefited from news that the U.S. and world economies may be further away from a recovery than previously thought. Throughout the economic crisis, the dollar has intermittently reprised its role as a safe-haven currency for investors fleeing riskier markets around the world.

But those gains are threatened by the renewed talk of diversification away from the dollar at the G-8 meeting, Mr. Heighway said.