itical credibility in America could have an impact on the primacy of its currency in the world, according to the Financial Times, a business analyst with the newspaper.
At the same time, the desire to get rid of the dollar monopoly is only intensified in an environment where finances are increasingly being used as an instrument of pressure.
Economic analyst Rana Foroohar is confident that the period of unlimited globalization has ended, and this is no longer a controversial statement for obvious reasons, as evidenced by a number of factors from the reduction of complex international supply chains in the context of the coronavirus pandemic to the aggravation in relations between the United States and China.
Today, she believes, even if Joe Biden wins the US presidential election and the EU reunites in response to a pandemic, it’s hard to imagine a return to the neoliberal thinking system of the 1990s.
The world is more likely to become “tripolar” – or at least bipolar – with greater regionalization of trade, migration, and, in the long run, even capital flows. There are all prerequisites for this, some of which, like the growth of nationalism, are alarming, while others, such as the desire to form a more stable and inclusive local economy, are, on the contrary, favorable.
The expert asks the main question, which until recently was considered controversial: are we entering the post-dollar world? This question may seem far-fetched, given that more than 60% of the world’s foreign exchange reserves are in dollars, which are used for the vast majority of world trade.
The decision to support the US Federal Reserve System (Fed) of foreign dollar markets as a measure to combat the economic consequences of coronavirus gave an additional impetus to the global dominance of the dollar.
As a result, many experts continue to repeat the mantra that it is impossible to fight the Fed under any circumstances. The dominance of the US banking system and dollar liquidity, supported by the Fed, will give the American currency unconditional superiority in the global financial system and capital markets for an indefinite period.
A number of experts argue that it is impossible to simply take and get rid of the dominance of the dollar without finding a replacement for it. In other words, although China, Russia, and other emerging market economies (as well as some wealthy countries such as Germany) would like to break the dollar’s dominance, they say that today they have no real alternatives. However, the desire to get rid of dollar monopoly is only intensified in a situation where finances are increasingly being used as an instrument of pressure.
For example, the recent steps by Beijing and Washington to limit the share of the private sector in each other’s capital markets confirm this. At the same time, the euro, which makes up about 20% of world reserves, cannot compare with the dollar in terms of liquidity. In addition, many questions remain regarding the future of the eurozone. The gold market is characterized by an excess of demand over supply, as evidenced by the fact that at present it is almost impossible to buy directly the metal itself.
But economic statistics are one thing, and politics is another. It is significant that China has recently been actively buying gold as insurance against a fall in the value of the country’s dollar reserves.
Beijing is also working on its own digital currency, e-RMB, becoming the first sovereign state to deploy a cryptocurrency supported by the Central Bank. It can be assumed that it can easily be distributed throughout the orbit of the Chinese “One Belt, One Way” initiative as an attractive alternative for countries and enterprises that want to conduct mutual trade without using dollars to “hedge” exchange rate risks.
In itself, this, it would seem, should not cast doubt on the so far superiority of the dollar. However, this was enough to encourage former US Treasury Secretary Henry Paulson, a man who wouldn’t get into his pocket, write an article about the future of the dollar. This does not happen for no reason.
The European Commission’s plan to strengthen the budget to overcome the consequences of the coronavirus pandemic through the issuance of debt obligations that will be repaid through taxes throughout the EU, can become the basis of a true fiscal union and, ultimately, the United States of Europe. If this happens, then it is possible that a much larger number of people will want to keep their savings in euros.
The author believes that it is necessary to take into account the weakening of relations between the USA and Saudi Arabia, which can also undermine the position of the dollar. Among the many reasons why central banks and global investors hold US dollars, the key is because oil is priced in dollars.
Keeping Saudi Arabia’s policy of undermining the American shale market has led to a complication in relations between the US Presidential Administration Donald Trump and Riyadh. It is unlikely that a possible future president, Joe Biden, who is likely to adhere to the pro-Iranian stance of Barack Obama, will be able to establish relations between the countries.
Even with such low oil prices, the head of the Federal Reserve Bank of Dallas, Robert Kaplan, recently stated that energy independence remains “strategically important” for the United States, and that “in the future, America will continue to produce significant shale.” Who then will take the place of Saudi Arabia? Rana Foruhar considers it very likely that it will be China, which wants oil to be valued in RMB. Thus, in a weakening world, fewer dollars may be required.
In addition, there is a question about how the informal support by the Fed of the costs of the American administration in the light of the pandemic led to the politicization of cash flows.
And here the problem is not the risk of inflation according to the scenario of the Weimar Republic, at least not in the short term, the expert points out. It’s about trust. Of course, there are those who claim that the dollar has become a global currency, so its fate does not depend on the perception of the United States. And the events of recent years confirm this point of view.
However, this cannot continue indefinitely, the analyst is sure. From the perspective of the US economy, much will get away with as long as political confidence in them is maintained. But in case of loss of this trust, the situation may change.
As economist and venture investor Bill Janeway recently noted: “The American economy hit the bottom in the winter of 1932–33 after Herbert Hoover lost credibility amid the fight against economic depression, and confidence in banks disappeared along with trust in the government. ”
It is possible that one day, confidence in the dollar and the authority of America will again become interdependent. Only five years ago, units of experts expressed this opinion. Today there are more and more of them. (Source: rambler)