The Financial Times reported yesterday on a World Bank report that warns that a steep, continued decline in the value of the dollar will hurt developing countries, which have built up large dollar reserves. According to the Bank’s 2005 Global Development Finance Repor, developing countries hold $1.6 trillion in foreign exchange reserves, 70 precent of which is in dollars. Of course, China accounts for 40 percent of the foreign reserves so it’s not China that is the main worry.

What you are, reading underneath the Bank’s reports, are concerns about a panic. The Bank wants also these currencies fluctuations to be managed in a nice, calm way. But, that’s not the way it works. You think some country’s money managers, feeling a need to make more profits and diversify its holdings away from a weaker dollar, are going to say, “gee, if we do this it could cause a collapse so we should consult with our colleagues in other countries.” Hell, no. The more likely approach will be, “let’s get out while the gettin’s good before we lose our shirts.” Thump…that’s the sound of the dollar going down steeply and a few countries going into financial cardiac arrest.