Dollar losing its luster but still reigns globally

By Todd Benson and Elzio Barreto - Analysis

SAO PAULO (Reuters) - Until a few years ago, most Brazilians able to hoard cash would rush to buy U.S. dollars to prevent runaway inflation or another economic meltdown from wiping out their hard-earned savings.

These days, with the greenback getting trounced around the globe and the Brazilian real soaring, the once almighty dollar is losing its luster in Latin America's largest country.

Instead of stashing dollars under their mattresses, many Brazilians now set aside money to buy euros or invest their savings locally, a sign of the country's newfound confidence in its economic future.

"People here just don't view the dollar as the safe haven it once was," said Joao Medeiros, a partner at Pioneer Corretora in Sao Paulo, Brazil's largest currency brokerage.

While the dollar still reigns supreme in global commerce, its precipitous decline is tarnishing its allure as an investment or as a safety net among the burgeoning moneyed classes in emerging economies like Brazil and Russia.

But in many places, especially those where black markets in currencies are an integral part of the economy, the greenback is still king.

The dollar has dropped about 16 percent against a basket of currencies .DXY since early March, dragged down by worries about the ballooning U.S. deficit. The recovering world economy has also helped push the dollar lower by rekindling appetite for riskier investments such as stocks and corporate bonds.

The greenback's slide is causing headaches for policymakers around the globe, particularly in countries with floating exchange rates, and may be discussed at this weekend's Group of 20 meeting of finance officials in Scotland.

Brazil, which last month began taxing foreign capital inflows in a bid to halt the real's surge, wants the G20 to take action to staunch the flow of money into emerging markets as yield-hungry investors shed dollar assets.

Professional investors aren't the only ones dumping the dollar. In Russia, where the dollar was the benchmark after the collapse of the Soviet Union in the 1990s, residents are increasingly turning to the euro.

"I need euros because this is the currency with which I travel to Europe," said Taissia, a 57-year-old architect in Moscow who declined to give her surname. "I never go to America on holiday, but I still have dollars to balance my savings."

Polls show that the euro has overtaken the dollar as the preferred foreign currency for savings in Russia, though most residents now prefer to keep roubles or invest in real estate.

"People can't get an adequate rate of returns by investing in dollars. So that's why they tend to leave more of their money in their home countries," said Edmund Phelps, a Nobel Prize winning economist from Columbia University in New York.

WOUNDED, BUT STILL KING

In many places around the world, however, the dollar retains its status. On the streets of Hanoi, Vietnamese looking to save for the future invariably swap dong for dollars or gold, the world's two most traditional safe havens.