Why is the Dollar viewed as a 'safe haven'?

It is commonly known that the dollar has safe haven status. During the recent subprime meltdown it was evident as the dollar grew stonger against all currencies exept the Yen.

What i would like to gain are others perspectives as to why this happens. People are not simply buying the dollar because it's a safe haven and thats what you do; are they?

I feel it could be the huge amount of US equity investors and US and foreign forex traders repatriating their funds into US dollars in times when riskier assets are not as favourable. The dollar may also gain due to the increase in treasury note demand at this time, seen as the US Treasury note is the most favourable (am i correct in saying this?).

Others views addressing why this happens would be greatly appreciated. Thanks!

dollar's the safe haven???
I thought gold was.

Not sure the US Dollar is a safe haven at all.. or indeed any fiat currency for that matter... If you bought dollars with your pounds 5 years ago, you would not feel it was a safe haven now. It may go back to those rates again, but doesn't look likely for a long time.

Gold has been a safe haven in times of crisis, but not long term. It did break $800/oz I think in the late 1970's and has not returned there since. It might break that high in the coming months/years, but even if it does, if you adjust the $800+ high with inflation, it is probably nearer $2000 today.

Just my thoughts.

The idea of a safe haven dollar stems from that the US dollar is backed up by the most powerful central bank in the world, which is the Federal Reserve. Not only it is backed up by the Feds, it is almost backed up by many other central banks who know quite well that a severe damage to the dollar means a severe damage to their own economies.

The dollar also gains the safe haven concept from being backed up by the largest economy in the world as well as the lack of a competing currency.

Imagine Micheal Jordan in basket ball, he is the safe haven player even if he is performing poorly since literally there is no competition against him while he is porforming poorly.

Of course I do believe that the main reference is Gold. This is what people really need to measure value with. However, this is not the case since promises from central banks that paper money are worth convince the majority of people. Remember that you can't fight the trend, if you do, you will eventually lose. And the trend is to trust paper money. The question is, when is the reversal?


Thanks,

Nader


Thanks,

Nader

To make a long story short it goes back to when we (The U.S.) took our dollar off of the gold standard. Since gold is in a limited supply and tough to mine, money could not be printed out of thin air (fiat money supply) and thus suppressed growth as the argument stood. Gold placed a very nice lid on inflation, but there were drawbacks for good or bad, you decide.

The decision to go off the gold standard was in no small part an attempt to persuade foreign governments to peg their currencies to the dollar. So the dollar replaced gold as the "backing" of other currencies. Why the dollar? As described, the shear size of our economy and as important our military strength. If all or most of the other currencies were pegged to the dollar, the dollar was THE currency. That is why say the GBP/JPY is considered a cross currency.

The move upward in the USD was only due to short covering during a crisis mode. Some USD appreciation was due to margin calls in the equity markets as they sold off heavily, thus creating artificial demand for USD as the calls had to be met.

In a crisis mode, look for which currencies have the most volatile moves on them. Then you will see how the market is positioned and how heavily....

For example, the JPY appreciated the most during the crisis because of the large global short position on that currency.

The USD is really not a safe haven.... it just benefited due to global market positioning as everyone ran for cover during a time of volatile uncertainty.

With the Fed in an interest rate loosening or holding steady position now and the generally negative outlook for the US economy, being long the USD is fighting the trend....

Just my .02

Vince

Thanks for the comments. Got a better perspective now.

Just one thing, In a time of crisis there is a huge sell off of equities, carry trades etc and the dollar grows stonger due to the scale of positions being liquidated and turned back into US currency (along with huge investment in US Treasury notes).

When there is a taste for risk and the opposite occurs; why then does the dollar not appreciate due to the scale of the investments in US equities? Is this offset due to more investment overseas and in higher yielding currencies? (and out of US Treasuries?).

Please correct me if I am wrong about any of the above.