What to make of the recent suggestion by China's central bank that the U.S. dollar should be replaced by a new reserve currency?

Two words: fat chance
It's an intriguing idea -- details on that in just a bit -- but a funny thing happened shortly thereafter. When Treasury Secretary Tim Geithner seemed to momentarily countenance the notion late last month, the dollar swooned, dipping dramatically before Geithner walked his "reasonable, it's-worth-considering" response all the way back to the currency-traders' happy place. Additional reassurance later in the day also comforted the dollar market.

All told, despite the fact that implementing such a move could doom the dollar, the stock market rose throughout all this back and forth … and back. Shares of companies that rely heavily on foreign suppliers such as Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD) posted decent gains on the day. Shares of more export-oriented companies like, Dow Chemical (NYSE:DOW), Weyerhaeuser (NYSE:WY), and PepsiCo (NYSE:PEP) also did very well. That's telling, I think, with the market (in part) performing weak-dollar math and pricing in the likelihood that these companies' goods could become more attractive abroad.

How's that again?
Currency arithmetic seems -- and in some respects is -- exotic. Still, the basic principle behind the dynamic sketched above is straightforward. Let's say there's a 1:1 relationship between the U.S. dollar and, um, the Freedonian groucho. If a U.S. exporter wants to sell a $100 item into the Freedonian market, the purchaser there will have to pony up 100 grouchos to seal the deal.

If, however, the dollar slips and becomes worth, say, just $0.90 relative to the groucho, that's effectively a 10% price cut.

You can see how this would work in reverse, of course, with the products we import becoming more expensive as the dollar grows weaker. And also of course, we are (and have been) on an importing bender, with 2008's trade deficit -- a figure that sums the dollar difference between the goods and services we purchase from abroad and those we sell overseas -- weighing in at a fat and unhappy $680 billion.

Which, of course, is why the dollar is doomed.

Doomed, I tell you!
Despite an impressive bear-market rally over the last six weeks or so, almost nothing fundamental has changed about our big economic picture. Unemployment remains around 8.5%, consumer confidence, personal income, and spending remain moribund, contributing to what is becoming a bout of deflation. Business spending is also comatose, and after showing some promise, retail sales have recently disappointed, coming in well below the market's expectations last week.

A sagging economy, combined with massive recovery spending and a large trade deficit is likely to weigh on the dollar.

That's not necessarily a bad thing ...
A weaker dollar would make U.S. goods more attractive both at home and abroad, benefiting domestic companies with significant overseas business such as Procter & Gamble (NYSE:PG) and Apple (NASDAQ:AAPL).

Combined with the government's outsized spending plan, such a move would pack a one-two punch to pull us out of this looming deflationary spiral and lead, eventually, to a virtuous cycle: increased spending begets increased production, which begets increased job creation, which allows for more spending, leading to increased production, which leads to ...

Well, you get the picture
You can bet the authorities tasked with repairing this economy are aware of these dynamics. China's artificial low-yuan-strong-dollar policy has been criticized for years for wreaking havoc on our trade deficit, and the administration recently backed off on its prior criticism, in part because China has finally allowed the dollar to depreciate.

And savvy investors should be on the lookout for signs that perhaps the secretary's gaffe wasn't a gaffe at all -- but a gambit. It might have been a subtle rhetorical move in a currency chess game that -- for both political and practical reasons -- can't be played with the kind of transparency Geithner's boss generally favors. 

To be sure, there are clear risks to a weak-dollar strategy. It would make imports less attractive, and it could artificially prop up industries that don't deserve the support. A weaker dollar could eventually lead to higher prices as well, since more dollars would be required to buy the same amount of goods.

Those are risks well worth running, though, at least temporarily.

Make your move
No matter which way the dollar or the coded currency conversation heads, investors can profit by devising a portfolio strategy generally well-insulated from shocks to the dollar, while making modest-size moves in the direction policy seems to dictate.

So even if, unlike me, you don't suspect that a weaker dollar will be accepted as part of the government's overall stimulus plan, the latest recommendation of the Fool's flagship Stock Advisor service should appear at the top of your watch list. It's a well-heeled brand name that is insulated whichever way the dollar goes. Its business is currency -- literally -- and the company is poised to profit from both its domestic and international operations.

If you'd like to sneak a completely free peek at the investment case for this market-beater -- not to mention all the others that have helped Stock Advisor beat the S&P by 37 percentage points since its 2002 debut -- click here for a free guest pass. There's no obligation to stick around if you find it's not for you.

Shannon Zimmerman runs point on the Fool's Duke Street and Ready Made Millionaire services. Home Depot and Wal-Mart are Inside Value recommendations. Pepsi and Procter & Gamble are Income Investor picks. Apple is a Stock Advisor pick. The Fool owns shares of Procter & Gamble. You can check out the Fool's strict disclosure policy right here.