When Canada becomes the global G-spot later this month there is something more important than bank taxes for the world's leaders to get excited about.

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Don Pittis has reported on business for Radio Hong Kong, the BBC and the CBC.

And that is the condition of the U.S. dollar.

Listening to politicians, the priority for the G8 and G20 gatherings in Huntsville and Toronto is figuring out how to pay for some future bank collapse.

But there is something much bigger at stake, though maybe because it is so worrisome, no one much wants to talk about it.

I want to make it very clear I do not think we need to be too fretful about the imminent crash of the dollar. Far be it from me to want to hype the downfall of the known financial world.

However, preventing the ongoing rise and ultimate collapse of the American greenback is at least as important as preventing the collapse of a major bank.

Because, so far at least, the U.S. dollar is the blood that runs through the heart and veins of the world financial system.

A gentle deterioration

When the current financial meltdown began back in 2008, there was a widespread view that the U.S. dollar would fall. Not precipitously. But enough to get everyone back on an even keel again.

Sure there were some worry-warts who warned that China might suddenly pull the plug on its credit line to the U.S. government, which would send the dollar into free fall.

Most people scoffed at this notion, realizing that such vandalism would wound the People's Republic as much as everyone else.

For all its self-styled Communism, China is deeply connected to the world financial system and the Beijing establishment may be more conservative than Stephen Harper. It is repelled by radical change.

So the U.S. dollar was supposed to decline. Gently.

Everyone knew the U.S. economy was weak and the government was spending too much. And so, for a while, the dollar did decline.

According to economic theory, that is exactly what should happen. When a spendthrift government's economy weakens, its currency falls against those of its neighbours. (Thus the problem for Greece, imprisoned in the inflexible euro.)

Relative safety

Over the long term, that equation has a balancing effect, making U.S. goods cheaper in world markets and Americans less inclined to spend so much on imports.

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Actor Larry Hagman who played J.R. Ewing on TV's Dallas shows fake dollars notes during a photocall at a Monte Carlo television festival on June 8, 2010. On that same day, Federal Reserve Chairman Ben Bernanke said the U.S. economy was still a work in progress and the euro appeared to stabilize after hitting a new, four-year low against the dollar (Eric Gaillard/Reuters)

But then around Christmas of last year something changed. As people worried more about the world economy — about Europe in particular — the U.S. dollar began to rise sharply against its main competitor as world currency, the euro.

It also climbed against the pound and ruble. For a while it even climbed against the Japanese yen and the Brazilian real.

The reason for the rising dollar? Most people in the financial world call it "a flight to safety."

So, you ask, if the world's investors think of the U.S. dollar as a safe haven, why are you worried about it? If I were glib, I would answer that the world's investors thought the same thing about the U.S. housing market in 2007 and then look what happened.

But the fact is, there's a conventional view that, in a true crisis, the safest place to put your money is in U.S. denominated bonds, especially those backed by the U.S. government.

In 2008, European government bonds had the same reputation. But with new fears of default in Europe, U.S. bonds are once again king. Hence the rising dollar, by default.

Popping the bubble

It is important to understand that everyone isn't doing this. There are still gazillions of dollars invested in stocks and bonds of all other kinds.

It is just that in times of crisis the most nervous money moves to the safety of U.S. treasury bills on the grounds that, no matter what else fails, the U.S. government won't. And that's enough to make a difference.

Currently, the leaders of the G20 are divided into two groups on the broad problem and how to deal with it.

There are those who think we should keep on stimulating the economy with government spending; and there are those who think governments should get their financial houses back in order and let the economy limp its own way back to health.

The Americans are in the first group. And because of the flight to safety, the flood of money into U.S. government bonds permits them to continue financing a (huge) deficit without hurting their spending power.

With the euro and British pound battered and the Chinese yuan pegged, the U.S. can buy just as much with its borrowed dollars as it ever could when it actually earned them.

But here's the tricky bit: Very soon, Washington will be pushing the limits of its borrowing. And it's not just me saying that.

Just this week, the head of the U.S. central bank, Ben Bernanke told Congress, "the federal budget is on an unsustainable path."

The G20 leaders should be very grateful that they still have the American engine to keep the global economy going. But that engine is running on borrowed gas.

Those leaders must make it a priority of their time in Huntsville and in Toronto to think about how they can help prevent the U.S. dollar from ballooning into a bubble that will swell and swell until it pops.

One technique might be to weaken confidence in the American currency. Not a lot. But a little. To let it down slowly. If so, then I've done my bit.