In 1971, on the demise of the gold standard, the US dollar became the currency of choice for most nations for their foreign reserves. The US Dollar was regarded in high esteem as a stable or even appreciating currency. In fact many countries actually pegged their currency to the US dollar, the most important being the Gulf States.
However, the long term future for the Dollar now looks uncertain. Kuwait bailed out of pegging to the dollar in May 2007 replacing this with a basket of currencies, and the rest of the Gulf States may follow suit in an attempt to reduce inflation which is double that in the US and Europe.
While its is true that Brazilian supermodel, Giselle Bundchen, is still taking payment in dollars that is unlikely to stop the decline. I do not believe there will be a sudden flight from the dollar, instead more of a gradual drift away, China and Russia being the most notable in starting down this route.
Furthermore China and Japan may reduce support of the dollar if the US falls into recession later this year. Why support your consumers if they have stopped buying anyway? China may want to bring its own inflation more under control by selling dollars and buying reminbi hence reducing the money supply.
That apartment in San Francisco might become affordable after all….
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