The hard currency faces the danger of losing hegemony.. The dollar is budging globally, and the yuan

[size=35][size=35]The hard currency faces the danger of losing hegemony.. The dollar is budging globally, and the yuan is igniting competition[/size]

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Economy

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2023-04-30 | 03:20

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Alsumaria News - Economy

Often, the appetite for an alternative reserve currency to the dollar increases - and predictions of the imminent demise of the US dollar revive the markets. For nearly three-quarters of a century, the dollar has dominated trade, finance and central banks' reserve portfolios on a global scale.

However, high inflation, divergent geopolitics, and sanctions imposed by America and its allies on countries such as Russia, have recently caused the voices of dollar skeptics to increase again, according to the British magazine The Economist.
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How strong can the dollar stay?
These events often fuel a world leader's tantrums toward the dollar. In 1965, it raged[url=https://www.alsumaria.tv/Entity/1906879729/%D9%81%D8%A7%D9%84%D9%8A%D8%B1%D9%8A %D8%AC%D9%8A%D8%B3%D9%83%D8%A7%D8%B1 %D8%AF%D9%8A%D8%B3%D8%AA%D8%A7%D9%86/ar/]Valerie Giscard d'Estaing[/url], then French Minister of Finance, against the exorbitant concession that the dollar gives to the United States. This time it was Lula da Silva, the president of Brazil, who, on a recent visit to China, called on emerging markets to trade using their own currencies.

At the same time, rising gold prices and a decline in the dollar's share of global reserves have raised other skeptics, who could also point to a recognition[url=https://www.alsumaria.tv/Entity/3801673947/%D8%AC%D8%A7%D9%86%D9%8A%D8%AA %D9%8A%D9%84%D9%8A%D9%86/ar/]Janet Yellen[/url], US Treasury Secretary, that the use of sanctions over time "could undermine the dominance of the currency." To make matters worse, the United States will soon face a financial crisis if Congress fails to raise the ceiling on the amount the government can borrow.

However, the skeptics' excitement may become detached from reality, says The Economist, as the US currency exerts a powerful pull on the global economy that has not materially weakened - even if America has recently found that there are real obstacles to exploiting its currency's supremacy.

What gives the dollar so much power and influence?
The dollar has a huge advantage. Between a third and a half of world trade is billed in dollars, a share that has been relatively stable over the long term, and is involved in nearly 90% of foreign exchange transactions. This is the liquidity of the dollar; So if you want to exchange euros for Swiss francs, it may be cheaper to trade in dollars than to do it outright.

Although the dollar's share of central bank reserves has declined over the long term, it still represents 60% of them. There is no sign of a drastic change lately, except mechanically by central banks re-evaluating their portfolios to take into account movements in exchange rates and higher interest rates in the US.

No other currency comes close to the size or fundamental appeal of this large dollar system, supplying safe assets available to dollar investors. The eurozone is fragile and its market for sovereign debt is mostly fragmented among its member states.

China cannot meet the global demand for safe assets as long as it tightly controls capital flows and runs current account surpluses (that is, it accumulates financial claims on the rest of the world and not the other way around). The dollar, as the dominant currency, benefits from these effects. People want to use the currency that everyone else is using.

Can the US dollar weaken?
But what is increasingly clear is that individual countries can circumvent the dominant system if they really want to. Although Russia's war economy has been hurt by the sanctions, it has not been crippled, in part because 16% of its exports are now paid for in yuan, compared to almost nothing before the invasion of Ukraine.

The Chinese alternative to RSVP is growing rapidly. Moreover, it is shifting more of its bilateral trade toward renminbi settlement—an easier task than substituting for dollars in trade flows between other countries.

Even many companies in the West now use the RMB to trade withChina. And new digital payments technologies and central bank digital currencies can make it so far easier to move money around the world without involving the United States.

Moreover, the US Treasury Secretary may seem right that using the dollar to pay countries is not a way to make or keep friends. America has not imposed secondary sanctions on countries like India that continue to trade withRussia, because she fears the backlash that might result from it.

Although a transition to a multipolar currency system is not imminent, it could happen later in the century, as America's share of the global economy shrinks. Such a system would be inherently less stable than one centered on the dollar - so it would be neither in the interest of the US nor the world to hasten the transition, the British Journal estimates.[/size]
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