If another currency were substituted for the dollar as the world's reserve medium, could the U.S. cope with the situation, given the staggering amount of dollars held overseas?

There is a basic misconception involved here. The only place you can spend a dollar is in the United States of America. That's central to understanding the whole problem.

To trace that through for you: Suppose we are instructed to move money out of a U.S. dollar account here and deposit it with, say, the Banco di Credito in Italy. All that happens is we get a cable that says, "Charge our account $10 million and credit the account of Banco di Credito." The balance sheet in America remains exactly the same. If that bank then lends those Eurodollars to Barclays Bank, we get a cable saying, "Charge Credito and credit Barclays." Again, the balance sheet here remains exactly the same. If Barclays decides that they like deutschemarks, they sell the dollars, say, to the Deutschebank. We get a cable saying, "Charge Barclays $10 million and credit Deutschebank." Once more our balance is unchanged.

So, dollars are overseas, and they're overseas, but there never is a problem about "all those dollars going abroad." The dollars cannot leave the system because it's a closed system. So it's really a mythical problem.

I have one more question. How will Europe's adoption of the EMS[18]  affect the value and stability of the dollar?

For the first six months it will be a trader's paradise because they'll know what the rates are. I wouldn't give it much more than six months because in order to hold it together, those countries would have to harmonize their various economic policies. There's no evidence in history to show that different countries will do anything but pursue their own national interests, which are different in each country. Over time, I suspect that this snake would self-destruct the same as the last one did.

[18] European Monetary System, an expanded version of the currency snake.