American writer Washington Irving coined the phrase "the almighty dollar" almost 150 years ago, calling it "that great object of universal devotion throughout our land".

Since then, the greenback has become an object of universal devotion throughout the world. Ask any foreign correspondent or international business executive on the move. It's the dollar they take on their travels, to change in the alleyways of Kabul or in the posh hotels of Jakarta. In fact, big hotels in several Asian, South American and Eastern European countries quote room rates only in US dollars.

Economies such as Hong Kong and Argentina go further and peg their currencies to the US dollar, and the exchange rate of the Chinese yuan to the US dollar has not varied for years. The world's newest nation, East Timor, adopted the dollar last year as its official currency, joining other small countries like those in the eastern Caribbean.

Never before has there been a multination money like the US dollar, though gold served as a pseudo world currency in the 19th and early 20th centuries.

As other currencies decline and fall outside the United States, the almighty dollar has become either the one and only currency or the alternative money of choice.

Psychology plays a big part. It is strong because people expect it to be and they keep investing in the dollar. Now, however, the euro is coming to challenge the hegemony of the US currency.

As far as international recognition goes, the euro is off to a stumbling start.

No one has ever seen or felt the currency notes actually crinkle between their fingers, whereas everyone in the world's cities knows and recognises the greenback. The untested European money has yet to establish itself as a quality brand among world currencies, and has to recover from its initial outing as a loser: those countries that transferred part of their foreign currency reserves into euros in 1999 have watched their investments fall in value.

When introduced two years ago, the euro traded as $1.17 and then started a long slide. It hit an 83-cent low last year and recently has hovered around 90 cents. One reason it could not recover was more investment capital flowed into the US from Europe in the past two years than vice versa.

The US economy has been growing faster than Europe's since the last American recession ended in 1991 and the trend has made investments in the US more attractive. Despite the current US recession - and the fact that Europe is showing more growth potential than the US - the perception abroad persists that the US has a more stable economic outlook and that the equity market will recover next year.

The dollar is the currency of an monolingual economy with a strong government and a stable, authoritative central bank under tried and trusted Federal Reserve chairman Mr Alan Greenspan, whereas the euro is the currency of a zone containing 12 sovereign governments, who may seek special-case exemptions from economic pain from time to time - unlike the 50 states of the US, which never question the Fed's fiscal line. And one of the largest European currencies, the pound sterling, remains on the outside.

It will take some time to establish in people's minds that the European Central Bank (ECB) is truly independent of any political authority and free to make fiscal policy as it sees fit, and in fact more transparent than the US Federal Reserve, which simply makes brief policy statements. ECB president Mr Wim Duisenberg, on the other hand, holds press conferences to explain his decisions.

He has yet to get rid of a perception among US investors that he focuses too much on price stability and not enough on growth. It boils down to a credibility problem and in the United States it is common to hear the blame heaped on Mr Duisenberg, mainly because he refused to play the American game and lower interest rates throughout 2001 in lock-step with the Fed.

US doubts about euro stability were reflected in a Fortune magazine analysis, which described the complex system of running the EU as a "precarious way to run the world's second-largest economy", and noted that the EU enlargement process posed problems in defining what the future Europe would look like.

As it is, the euro zone remains a patchwork of different politics and cultures. An unemployed person cannot as easily move from Dublin to Athens say, as can a laid-off worker in the United States move from Detroit to Atlanta.

Such reasoning prompted Mr Greenspan to forecast last month that the dollar would remain a more attractive international currency.

"Clearly the euro readily meets all the key qualifications for a major international currency.

"Indeed, there can be little doubt that the euro is a sound currency," he said. "But the evident strengthened demand for the dollar relative to the euro has reflected a market expectation that productivity growth in the United States is likely to be greater than that in continental Europe in the years ahead."

The Economist disputed his conclusions about productivity during the 1990s, arguing that if one takes GDP per hour worked, American productivity rose by an annual average of 1.6 per cent in the 10 years to 2000, while euro-zone productivity rose by 1.9 per cent. Total factory productivity, which takes account of the efficiency with which capital and labour are used, also grew slightly faster in the euro zone than in the US.

Mr Greenspan blamed the pro-labour culture of Europe as one of the reasons why European firms could not downsize and increase productivity as readily as in the US. New technologies could be applied more efficiently in the US, where the level of employment "has turned out to be higher as firms find hiring less risky and, hence, are more willing to add employees to their rosters".

Other factors in the consistent weakness of the euro included regulatory arguments and legal differences across borders that have hampered equity trading and securities lending, all promoting the great man to conclude initial expectations that the euro would replace the dollar in many portfolios - including those of central banks - were "probably overstated".

The dollar has also been sustained in value by the preference of institutional investors in the euro zone for dividing their portfolios between Europe and the US.

On the plus side, a euro-denominated bond market rivalling that of the US has already emerged. As the euro takes hold, investors around the world will have an alternative major currency to bet on if they see the US faltering.

Also, if it helps make Europe a stronger, more competitive economy - with takeovers and mergers, more easily achieved inside one currency zone, making big corporations stronger - then it will benefit everyone and give the United States a real run for its money. Meanwhile, the euro is entering the race at a time when the dollar is on a big high. Global investors have been snapping it up as Japan sinks into recession again and fears of the US getting bogged down in Afghanistan have largely evaporated.

The ECB meanwhile has cut the euro region growth forecast for next year from a high of 3.1 per cent to a maximum 1.7 per cent. For the first few months of the euro's real life, it will still be a case of the dollar getting all that universal devotion.