The recent slump in the United States dollar and the rise in the price of gold raises questions about the future status of the greenback as the world's reserve currency and about the security of paper money generally.

The US dollar (as measured against a basket of currencies) has been falling for most of the past decade. Between 2001 and 2008 the US dollar trade weighted index fell by more than 60 per cent (from peak to trough).

That fall was halted temporarily by the "flight to safety" during the global financial crisis, but since last June it has fallen 14 per cent and is now setting new, all-time lows.

The slide in the dollar over most of the 2000s was consistent with a huge and intractable trade deficit which at one stage required the US to borrow more than US$2 billion ($2.47 billion) a day to pay for imports not able to be financed by export receipts.

The fall in the dollar was probably exacerbated by the fact that a key trading partner (China) kept its currency tied to the US dollar preventing any significant adjustment in competitiveness with that economy.

The high cost of the wars that the US became involved in from 2001, and the resulting fiscal deficits, may also have been a drag on the dollar.

Although it is tempting to claim that the fall in the dollar over the 2000s has more than halved the trade deficit (from around 6.5 per cent at its peak in the middle of the decade to just above 3 per cent today), the financial crisis and the crunch to domestic demand were major contributors to the improvement in the trade deficit.

The trade deficit is no longer a major factor driving down the dollar. The more obvious forces now are aggressively expansionary monetary and fiscal policies.

The low interest rates, quantitative easing and large government budget deficits seem likely to keep downward pressure on the dollar for at least the rest of this year as investors seek less vulnerable currencies, or gold that can't be debased.

Does all this mean the US dollar is about to lose its status as the world's reserve currency? It's unlikely.

There is no obvious alternative: the euro is tortured by sovereign debt problems and a complex political support structure; the yen and the Japanese economy are in no fit state to take on reserve currency status; and the Chinese yuan is a long way from being a freely traded and transparent world currency.

There's also been talk of some sort of composite currency becoming the reserve currency - appealing in theory but difficult to see working in practice. So it's going to be the US dollar for a while yet despite its declining value.

Worries about the value of the world's leading currencies have encouraged people to invest in gold (and silver) on the basis that it is the only currency with integrity.

Given that the US in particular is probably comfortable to see its currency depreciate to make it more competitive and to possibly help inflate away some of its mounting pile of debt, going for gold seems pretty rational.

The expansionary monetary and fiscal policy also increases the risk of future inflation, further convincing people to hold gold which is seen as an effective hedge against accelerating inflation.

The price of gold has lifted significantly on the back of the currency and inflation worries. It is up around 30 per cent over the past year and around 140 per cent over the past five years.

These price increases are in US dollars so a portion of the rise reflects the sinking greenback. But despite its rapid rise gold is not the best performing commodity.

Silver prices have leapt by nearly 150 per cent over the past year, while the price of coffee is not far behind (up 123 per cent) and wheat has risen twice as much as gold over the past year.

The question is whether economies are slowly being forced to return to some sort of gold standard that would mean paper money was explicitly backed by gold to shore up its integrity.

The rush to gold certainly suggests people are looking for greater assurance of the purchasing power of their money or wealth. But perhaps the rise in the price of gold is simply part of the general rise in commodity prices and that linking its rise to lack of integrity of currencies and inflation fears is simply spurious.

The past three years have seen some extraordinary measures required to prevent a financial meltdown and nurse economies back to some semblance of growth. The Fed is effectively targeting higher inflation - they have been trying to avoid a deflationary cycle taking hold.

Once growth is firmly established interest rates will rise thus restoring some confidence in the dollar and making gold a less attractive asset to hold.

The status quo will have been restored.

Andrew Gawith is executive director of Gareth Morgan Investments.