Dollar becoming even more worthless...

The Left Coaster has an interesting post regarding the likelihood that central banks are buying more euros and less dollars. Unfortunately, a subscription is required to read the article on the Financial Times website, but I'll quote from them anyway:

In the two years since a similar survey was conducted, reserve managers had begun to seek higher returns for the money under management. For these managers, dollar assets have become less attractive because the fall in the dollar since 2002 has reduced the yield they received and, in some cases, has led to negative real returns.

[snip]

At the end of 2003, central banks held 70 per cent of their official reserves in dollar- denominated assets and central bank purchases of US securities had financed more than 80 per cent of the the US current account deficit in 2003.

So basically these global banks finance our deficit by buying our government's debt. When the dollar continues to weaken, however, this is no longer necessarily a good investment for said banks. While this article is a bit wonky, Nouriel Roubini also weighs in on the U.S.-China prisoner's dilemma:

China may tire of financing the US for lots of reasons: eventual capital losses on holding of forex reserves are massive; partially sterilized intervention causes dangerous credit and asset bubble, excessive real investment and even larger NPLs with risk of China hard landing down the line; it also causes higher inflation

EDIT: Brad Setser has a more readable, though short, analysis