April 8 (Bloomberg) -- The dollar is at risk of being surpassed by the euro as the world's leading reserve currency in the next seven years, according to a study published by the National Bureau of Economic Research.

Realized and forecast increases in the number of countries using the euro, and the growth in the economies that have adopted it since 1999, make the 15-nation currency a stronger competitor than the German deutsche mark and Japanese yen were in the 1980s, economists Menzie Chinn and Jeffrey Frankel wrote in a working paper for the Cambridge, Massachusetts-based NBER. The institution is most famous for making the official determination of when recessions have begun and ended.

The dollar's 35-year trend of depreciation combined with the 25 years of twin deficits present an additional risk to the currency's stature, the economists wrote. The authors are economics professors, Chinn at the University of Wisconsin at Madison, and Frankel at Harvard University's Kennedy School of Government in Cambridge, Massachusetts.

``The dollar has not been a good investment over the last 20 years,'' Frankel said in a telephone interview. For the dollar, ``the biggest downside risk is if things just continue the way they've been.''

The dollar was involved in 86 percent of currency trades in 2007, down from 89 percent in 2004, according to a 2007 report by the Bureau of International Settlements. The euro's share fell to 37 percent from 37.2 percent during the period.

The dollar index, which measures the U.S. currency against those of its major trading partners, has fallen 52 percent since the end of 1984 to 72.2.

Likely to Decline

Billionaire Warren Buffett, chairman of Berkshire Hathaway Inc., in February reiterated to an audience in Toronto his long- standing forecast that the dollar's value is likely to decline during the next decade if policies don't change.

The euro has gained 12.4 percent against the dollar since the Federal Reserve began lowering its target for overnight loans between banks to 2.25 percent from 5.25 percent on Sept. 18.

`Out of the Window'

``The Fed is just throwing the dollar out of the window,'' Jim Rogers, chairman of Rogers Holdings and co-founder of the Quantum Hedge Fund with George Soros, said in a Bloomberg Television interview on March 17. ``They are signaling to the whole world that they have given up on the dollar. Most of my U.S. dollar assets are gone.''

The dollar accounted for 63.9 percent of total reserves held by governments and central banks at the end of 2007, compared with 63.8 percent at the end of the third quarter, the International Monetary Fund said March 31 in Washington. The euro's share rose to 26.5 percent from 26.4 percent. IMF quarterly figures go back to 1999, the year the euro was introduced.

Much of the growth in euro reserves is due to the appreciation of the currency, Frankel said.

The U.S. budget deficit was $162.8 billion for 2007 compared with a surplus of $236.9 billion in 2000.

President George W. Bush has forecast a $410 billion budget deficit for this fiscal year ending Sept. 30, approaching the record of $413 billion set in 2004. The figure may eventually reach as much as $800 billion, according to Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California.

The total current-account deficit, a measure of the value of goods, services and income moving between countries, fell for the four quarters of 2007 and was $738.6 billion, down 9 percent from the all-time high in 2006, according to Bloomberg data.

The U.S. Commerce Department will probably report April 10 that the nation's trade deficit fell to $57.5 billion in February, from $58.2 billion the month before, and the lowest since September, according to the median forecast of 73 economists surveyed by Bloomberg News.

The U.S. economy grew at a 0.6 percent annual rate in the fourth quarter of 2007, according to the Labor Department.

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

Last Updated: April 8, 2008 16:37 EDT