Brussels / Paris: The Taj Mahal, one of the world’s architectural masterpieces, welcomes about 2.5 million visitors each year—provided they don’t try to buy tickets with dollars. India’s most popular monument announced in November that it would stop accepting the US currency and take only rupees, hurling yet another insult at the once mighty greenback.

Another snub: With the greenback falling 12% against the rupee this year, the government has barred visitors to the Taj Mahal from buying tickets in dollars. The entry price for foreigners is now Rs250, more than $6, against the earlier $5. Nearly 2.5 million people visit theTaj each year.

The dollar, which has been snubbed by everybody from government officials in Kuwait and South Korea to top-earning Brazilian supermodel Gisele Bundchen, may not recover its lustre. Economists say the currency, which has declined in five of the past six years against the euro, is caught in a down-draught as investors pour into Asia, prompting a tectonic shift in economic power from the US.

“Can it be turned around? Probably not totally," says Riordan Roett, a professor of political science at Johns Hopkins University in Baltimore. “The century of Asia has arrived, and the US and its European allies will need to adjust to that."

In Asia, an investment boom has strengthened local currencies. China’s roaring economy has grown an average of 10.4% in the past four years, fuelled by record exports and a flood of foreign funds. That’s pushed up the yuan since the government ended the currency’s peg to the dollar in July 2005. As of 19 December, the yuan—managed against a basket of currencies—climbed 12% against the dollar. In India, the economy has grown at its fastest pace in the past four years since independence in 1947. That’s helped lift the rupee 12% against the US currency in 2007 through 19 December.

Dollar rally

Dollar bulls say the currency, which rose to its highest in seven weeks against the euro on 17 December, could rally further in 2008. They cite the fiscal 2007 US budget deficit, which fell to $162.8 billion (Rs7.5 trillion then) compared with $412.8 billion three years ago. And the current account deficit narrowed to $178.5 billion in the third quarter, after reaching a record $217.3 billion in the 2006 period.

Deutsche Bank AG, the world’s largest currency trader, predicts the dollar next year will rise about 2% more versus the euro, a currency shared by 15 nations as of January.

Longer term, the slowing US economy—hurt by a banking and consumer credit meltdown that’s only getting worse—will weigh heavily on the dollar. Since August, the Federal Reserve has cut interest rates three times to 4.25% in December, and traders in Federal funds futures see an even chance that the rate will be 3.75% by May.

Fed’s moves, coupled with the European Central Bank’s threat in December to raise rates, have tilted the odds against the dollar. In 2007, it fell 8% against the euro and 2% against the British pound through 19 December.

$1.2 trillion flight

Asian and Persian Gulf nations are concerned that the flight from the dollar is feeding on itself and may spur a crisis of confidence. Kuwait abandoned a dollar peg in May due to its weak buying power. South Korea’s central bank in November urged shipbuilders to issue invoices in won and take out more hedging policies to guard against the weakened dollar.

Peter Kenen, a professor of international finance at Princeton University, raises the possibility that the dollar’s role as the world’s dominant reserve currency may be coming to an end. The dollar’s share of central banks’ currency portfolios slid to 64.8% in the second quarter of 2007 from 71% in 1999, the year the euro debuted, the International Monetary Fund says.

Cash-rich governments, mostly in Asia and West Asia, may shift as much as $1.2 trillion in dollar holdings to other currencies in the next five years, Merrill Lynch & Co. economists say.

China in 2100

“The dollar will not recover completely its dominant role in the system, although it may well share that role with the euro and even the pound," says Kenen, a former treasury adviser. “What some of us thought could happen in the distant future may be upon us now."

Lester Thurow, a professor of economics at Massachusetts Institute of Technology (MIT), disputes the assertion that the dollar has lost its clout. Historical trends of developing nations suggest China’s economic output and per-capita income may not catch up to that of the US for about a century. “A reserve currency needs to be the currency of a world power," Thurow says. “China may pass the US, but not until 2100." China, with $1.46 trillion in foreign exchange reserves, is a wild card. It’s combing the world’s markets for investments that pay more than the return of about 4% on 10-year US treasury bonds.

Chinese investors reduced their holdings of US treasuries by 8% to $388.1 billion in October from a peak in March. Then, in early December, China’s commerce ministry gave a boost to the dollar, saying it would encourage more businesses to buy American assets.

Morgan Stanley, the second largest US securities firm, on Wednesday said it received a $5 billion infusion from the state-controlled China Investment Corp. The firm lost $3.56 billion in the fourth quarter amid the subprime crisis.

Economists debate whether the administration of President George W. Bush wants the dollar to appreciate. After US trading partners in Europe and Japan criticized the currency’s decline, US treasury secretary Henry Paulson in November stepped up his rhetoric about the economy’s long-term growth prospects to instill confidence in the dollar, says Jens Nordvig, an economist at Goldman Sachs Group Inc. in New York.

With the weak dollar spurring US exports—one of the few bright spots in the economy—some economists don’t take Paulson at his word.

“The Bush administration is not sincere in saying it wants a strong dollar," says Nobel laureate Paul Samuelson, a professor emeritus at MIT. “The long-run trend for the dollar is very likely to be downward."

The currency will be barred from more places than the Taj Mahal in the event Samuelson is right.