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If you are a Harry Potter fan, you are surely familiar with Lord Voldemort, the character who is as important as Harry Potter himself, if not more. The existence (and popularity) of Harry Potter is only in the context of his eternal battle with Lord Voldemort. Interestingly, Lord Voldemort is described by most others in the series as “He-Who-Must-Not-Be-Named”, whose name no one dares to utter.

If you dig deeper into the developments in the financial world and economies around the globe, especially after 2008’s meltdown, you’ll find that one section of experts seem to have an eerie sense of discomfort. Why? Because other experts and global economies are doing a ‘Lord Voldemort’ on the issue of the U.S. dollar losing its status as a global reserve currency!

Now, no one with a good sense of history and precedents is making predictions about a sudden, overnight demise of the status of the U.S. dollar—or even one occurring within the next few years, for that matter. However, when discussions start focusing on the next few decades, the argument starts getting more intriguing. Here’s an economy faced with the dilemma of having to save much more (at a significant multiple) than it did in the past to reduce the huge gush of paper currency it’s been printing, against the need for disproportionate economic growth (the level of consumerism being higher than in the recent past) to keep the economy going and reduce employment. The preference here would decide where the local economy would lead and, in turn, decide the fate of the strength of the currency. Having said that, these are not easy choices for an economy to make, as they result in tectonic shifts that occur no more than once in the lifetime of a human.

The interesting phenomenon here would be the reaction of various other global economies to this development, whether overt or covert. The furtive response of some economies would consolidate the ‘Lord Voldemort theory’ in financial markets. Arguably, it would be too harsh and unreasonable to expect economies like China to blatantly acknowledge the ground reality about the status of the U.S. dollar, as its sovereign treasuries are currently saddled with mountains of dollar-denominated assets, including U.S. T-bills. It would be no different in Japan due to the exposure of its economy to the U.S. treasuries—it would be like the proverbial harakiri to speak ill of the U.S. dollar.

The smart idea being pursued by economies like China is this: To keep liquidating chunks of dollar assets at a consistent pace and use the proceeds to set its hands on hard assets that are not directly priced in U.S. dollars, be it global oil reserves, natural resources like iron ore, acquisition of global companies, etc. India is not too far behind, either. In line with its millennium-old infatuation with gold, stocking up gold or settling all its payments in dollars may arguably have led to one of the biggest-ever purchases of gold in Indian history by the sovereign last calendar year. Is corporate India moving in the same direction?

The views expressed here are personal.

BHARAT BANKA is the Founding CEO of Aditya Birla Private Equity.

©Entrepreneur April 2011

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Bharat Banka, dollar, Harry Potter, meltdown