Of late, people have been wondering about the long-term strength of the US dollar. Has its value been permanently impaired by its fall in the currency markets in the past couple of years? Or is the fall merely one of the downs in an endless series of ups and downs? And either way, why does it matter?It matters because the chances are, if you live in Bermuda, that you "think" in dollars. That means that, wherever you may be or whatever you may be doing, you tend to think of your income and expenditure, and assets and liabilities, in terms of dollars.

For example: if you buy a coffee in a train station in Lisbon, whatever it costs in euros, you translate into Bermuda (or US) dollars, to get a sense of what it really cost you. If you want to buy a book online, and it's quoted in British pounds, you consciously or sub-consciously convert the price to dollars, to make sure you're willing to pay it. (If you don't, you should.)

In the simplest terms, that's why the value of the US dollar against other currencies matters to us. At a more complicated level, the value of the dollar on any given day against other currencies affects stock markets, governments and the price of things, such as perhaps your children's education. If you're hoping to send your kids to England, say, for a three-year degree, the value of the dollar might be the difference between sending them and not sending them.

Why? Because if a year's education in England costs, say, $10,000, your cost in dollars — the amount you will have to pay out — depends on the exchange rate. If the pound is at 1.50 to the dollar, that school year will cost you $15,000. At today's almost 2:1 exchange rate, the same year would cost you $20,000. For most people, that's a huge difference. With two kids studying for three-year degrees, that difference would amount to $30,000.

Currency rates are essentially a function of the views of governments and speculators. Rates often have little to do with the value of the goods and services that one can buy with those currencies, or the underlying strength of the economies involved. As evidence, look at that current 2:1 rate for Sterling. The British economy is a catastrophic morass. Under Gordon Brown's stewardship, the British Government has used accounting tricks to transfer government debt off the books to make things look good.

Britain in the past 40 years has provided a text-book example of how bad governance can virtually bankrupt a country, yet its currency is as strong as it's been in a generation. Bermudians travelling to the UK on holiday find prices there about the same, at current exchange rates, as they are here in Bermuda, where average earnings are about three times as high.

On another level, exchange rates affect exports, imports and every other aspect of country's economies. A weak US dollar makes American products cheaper abroad, encouraging exports, and makes foreign imports more expensive, discouraging imports. Remember when the US trade deficit was a big issue? The drop in exchange rates has taken the whole thing out of the headlines.

So, to answer the question, is the US dollar in the process of a permanent devaluation that will see it replaced as the international currency? All the experts say it is, which is all the evidence you need to show that it is not. Economists rarely agree on anything, and when they do, they are almost always wrong.

The dollar is the currency of choice for most emerging economies. The Chinese can't get enough of them. Anything you read about how dumb the Chinese are to buy their investments in US dollars should be considered in light of the alternatives. Should the Chinese buy euros? Half the citizens of the euro economies live in utter poverty, and there is as yet no guarantee that the euro would survive a serious downturn in the core economies that support it.

If the Democrats should win the US presidency next year, you can be sure that one of their first moves will be to "fix" the exchange rate problem. Within a year or two, rates will revert to their more traditional levels.

I doubt that the dollar will yield its central place in the world economy any time soon. The US accounts for something like 20 percent of world demand. Until the Chinese economy starts to generate opportunities for its people to spend their money, it will remain an unsustainable bubble.

This is just my view, of course. A quick web search would find you any number of gold bugs who believe that the collapse of the present currency system is at hand. I disagree: I can't see much of a long-term change taking place as a result of current circumstances. In my book, today's distorted currency values are merely a normal part of the ups and downs of currency fluctuations.

It would be wrong, if not impossible, to start thinking in other currencies, especially if you live in Bermuda and earn, borrow and save in dollars. By all means move to Paris and get a job there for half as much, if you're really worried. That way, if the world goes to hell, at least you'll be able to find good pastries.

A nuclear device exploded in Tel Aviv by the fanatical racists who run Iran, or something similar in London, would cancel all bets for quite some time. When that happens — and it's a question of when, not if — or if the Iranians manage to force the price of oil up over $100 a barrel, do you think people would rush to buy euros or Chinese yuan as a safe harbour? I don't think so. The chances are we'll be thinking in dollars for decades to come.