US monetary dominance is up for grabs. This doesn't mean the US is necessarily supplanted as the world reserve currency, but it does mean lots of trade may dedollarize to some extent. My bet is there will be two major currency zones. Dollar/Euro in the West + Middle East + India, Renmimbi in the East + Australia + Africa.
Given the explosion of debt to GDP in the west vs the east, I see no way the Renmimbi will not continue to appreciate against the dollar, and I fully expect Chinese monetary dominance to increase with the government's continued annexation of Hong Kong.
BTC will probably dominate in countries were currency value is routinely destroyed (developing nations, Russia, the US and Europe to some extent) but as only as a back channel currency: I doubt any major commodity market or trade is ever going to be priced in BTC.
It doesn't need to be dominant. It's such a small sliver right now that it could go 10x and still not be anywhere near dominant.
There are a lot of places where the government is not strong enough to maintain a reliable currency on its own. The USA was the global currency up till now because it was universally trusted, but that's changing. The people who have profited from the international dollar are maneuvering to keep their monopoly.
Imo, the US dollar will remain the world reserve currency and the safest thing as long as the US military remain the most powerful. Sure, EU politics could be more stable but they can't defend against threats (Russia).
Also, I don't think many people, countries and businesses are going to trust China. They have a bad track record especially in crypto (detaining CEOs, freezing money, etc...). Everybody else is too small to matter (ie: New Zealand, Emirates, etc...).
The dollar will not be 'dethroned', however, will lose a market share.
From the speeches made at the BRICS summit, it looks like the plan is to create a settlement currency for inter-BRIC country trades.
This was a probably long time coming. The 'exorbitant privilege' of one country being able to print currency every other country needs (or is forced to need) requires commensurate responsibility, including the wisdom not to use that privilege as an instrument of foreign policy. Unfortunately, the temptation to use the 'dollar weapon' has become too difficult for US Gov to resist and no one should not be surprised that other countries seek to reduce risk.
The US remains the No1 or No2 trade partner for almost every country in the world. so the USD will likely remain No1 currency, but it will lose a market share, a little at first, then maybe a lot
US military dominance is what makes USD the world's reserve currency which in turn drives 30-40% of our GDP if we start to withdraw it will start to affect USD standing as a world's
reserve currency.
This is perhaps the best written article on the current state and future of US dollar (and thus, America). As an avid follower of geopolitics and with exposure to both east and west, I've often had to work out where the future lies and the thoughts of this article appear to mirror mine.
Especially since Trump's election, I have always wondered about the future of America, not just socially but also economically. Trump's excessive use of sanctions and bullying comes at a major loss for future generations. And this line from the article elucidates it:
"However, when major powers like China, Russia, and India begin pricing things outside of the dollar-based system and using their currencies for trade, including for energy in some cases, the US can’t realistically intervene militarily, and instead can only intervene with sanctions or trade disputes and other forms of geopolitical pressure."
and
"Chinese officials have said on numerous occasions that their reliance on the dollar system is a security risk for them. Having surpassed the United States as the world’s largest trading partner and world’s biggest importer of commodities, China increasingly has an interest in being able to acquire commodities and perform global trade without dollars, which as we see with trading partners like Russia, or with China’s yuan-based oil futures contract, they’re increasingly able to do with small steps at a time."
The bullying is the last straw. A lot of countries are very independent and are only trading in dollars because of oil. Take that away with sanctions and the demand for dollars drops rapidly. Thus, US dollar doesn't need to be a major reserve currency, holding US dollars might even be a risk.
Had bitcoin not been deflationary, bitcoin could have filled this gap. More likely though is that the declining faith in American politics will force other countries to go back to a multicurrency system and thus, US will no longer remain the top dog.
It is the leading world dominant reserve currency by far. It is at about 58%. The nearest runner up, the Euro is at about 21%. When even adversaries keep large reserves of US currency I think that is a pretty strong acknowledgement.
The US $ may stay the official reserve currency but I expect many pairs of countries to start dealing directly in one of their own currencies. The effective transition off of the dollar as the reserve currency will probably be gradual as more alternative currencies are used by trading partners.
There is none and that's the only reason the dollar is still a reserve.
The only two competing currencies who have large enough economies are Euro and Yuan.
Euro can't be reserve because they are not an industrial powerhouse any longer and also a vessel of US for the most part.
Yuan can't be reserve because of lack of faith in Chinese government and currency controls.
The yuan still has the best shot though as many developing countries are in agony and the US has decidedly receded from the world stage, which means it's status as reserve currency is questionable at best.
The United States has a substantial advantage in that the dollar is considered the world's reserve currency. This is in large part due to the "petrodollar" as the vast majority of oil is only sold in dollars. This puts a large demand on US Treasuries from foreign countries & banks so that they can meet this dollar demand.
The dollar's dominance is slowly weening as Iran now sells oil to China using the Yuan. The IMF also has a potential replacement reserve "currency" called Special Drawing Rights (SDR). Though it's not technically a currency but instead it's more an index based on basket of currencies. That basket includes US Dollars, Japanese Yen, the Euro, Pound Sterling, and most recently the Chinese Yuan.
America and American capitalists benefit from America’s position, so I can’t imagine American isolation going much further. The US controls many of the world’s major supply chains and trade routes and ensures them with its military. What country can offer realistic competition for a reserve currency? China is trusted even less than America in many parts of the world, and their governance is even more opaque.
I'm not educated in the economics of reserve currencies [1] so would be interested to hear what informed minds think. If we look at the top 5 reserve currencies in the world today (USD 62%, EUR 20%, JPY 6%, GBP 4%, CNY 2%), the USD is entirely dominant but it also means that any perturbations to it might destabilize the global economy.
I am a bit more optimistic about this. I think our US dollar with be a major part of special drawing rights (SDR) that will be the world’s currency for large financial transactions and this might happen sooner than later. I don’t think the US dollar gets abandoned, but we will lose some of our advantage of controlling the primary currency.
I am disappointed that we don;t get along better with Russia and China. All three governments have major faults but it is in the interest of the world for super powers to get along.
I still believe in a bright future caused by technological progress that will be a high tide lifting all boats. Yes, governments + corruption, etc. will be as bad as ever but I expect the lives of most people on this planet to get even better in the future.
The status of USD as global reserve currency will end whenever the way the US treats holders of its debt becomes worse than someone else's. For now, China is not trusted to play nice with their currency, Europe keeps dipping down into negative interest rates, and everywhere else might become a different nation next year. If China becomes nice (not going to happen), Europe gets its act together (unlikely), or the rest of the world becomes stable for investment (not going to happen as long as the US is running around preventing it), the USD will be the best reserve currency any country can choose.
I don't know much about montary theory but from what I do know it seems unlikely that in my lifetime the US dollar will be threatened as the world's reserve currency.
I can only think of the euro, yen, renminbi, rupee and perhaps the pound as currencies that are backed by strong enough political forces to be considered as reserve. But there are many threats which each of these routes, do you trust the Chinese central bank? Is India stable enough? Is the EU stable enough? They are losing a prominent member in March 2019, will the UK recover post-brexit for the pound to be attractive??
Even then, as stated other nations have deep ties with the US which increases the risk of moving from the dollar. We provide for Japan's defense, we are the biggest funder of NATO, etc. While Trump has moved the US away from international institutions during his term I have no doubt that the US will continue to dictate global economic policy after his term is complete.
In many ways, while it's fun to speculate, I don't see the rest of the world having the will or options to move away from the dollar as a reserve currency.
The hegemony of the dollar system isn't simply because it is the only game in town. The military, economic and geopolitical factors which underpin it are the reasons that it is the only game in town. These underlying factors won't go away simply because the implementation details of the currency change.
Perhaps it will come to pass that the US is no longer the dominant geopolitical player or currency issuer. Davos etc. would prefer to have a supranational hegemon. They have been planning and advocating for this for decades.
It is not hard to imagine globalist interests corralling a multipolar world into their schemes. They need only play the edges against each other until they meet in the middle. They're experts at positioning the goalposts.
Even further afield is the idea that the CCP will take the driver's seat.
Either way, I find it hard to believe that these top-down solutions will provide anything other than a paradigm of increased centralized control as implemented by a single dominant player.
In my view the policy options for CBDC are the primary motivators. Taxation, tracking and 'stimulus' measures are better served by CBDC. It is a technocrat's wet dream.
Who will be implementing it isn't as relevant. If I had to guess I'd say the existing paradigm will continue and the globalist faction will continue to push for dominance. Even Libra was modeled after the SDR.
Given the explosion of debt to GDP in the west vs the east, I see no way the Renmimbi will not continue to appreciate against the dollar, and I fully expect Chinese monetary dominance to increase with the government's continued annexation of Hong Kong.
BTC will probably dominate in countries were currency value is routinely destroyed (developing nations, Russia, the US and Europe to some extent) but as only as a back channel currency: I doubt any major commodity market or trade is ever going to be priced in BTC.
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