Image courtesy: thelondonpost
It is the trust people repose on a currency that makes it the 'Reserve currency of choice'. Of late, this trust in the US$ has been continuously ebbing away, eroded by the actions or lack thereof, of an increasingly frail USA. The status of the “reserve currency” brings with it~
i) Lower exchange rate risk
ii) Greater buying power.
However, artificially low interest rates and out of control deficit spending can be disastrous. This is exactly what the US has done.
The US$ was fixed to gold @ US$ 35 /ounce during the Bretton Woods Agreement period. Adjusted for inflation, it would be less than $497.08 in today’s dollars as compared to over $2,000 US$ today per ounce. Thus, the concern that US$ denominated assets may depreciate as the US$ weakens.
As the purchasing power of the dollar falls, more countries will move away. The US$’s share of global official reserves is the lowest in over 25 years.
Click to read: US$ to lose reserve status
Additionally, the US has problems within and without. Saudi Arabia has threatened to crash the US$ in 2016 and again in 2019. The Saudi Riyal is pegged to the US$ and so it is not an easy task but it is not impossible either. "...there is no reason to pay for oil in dollars…”. CEO French oil giant Total, According to Reuters
Conduct of oil transactions in currencies other than the US$, combined with a growing effort at elevating alternate currencies, coupled with initiatives intended to weaken Washington’s financial dominance, could chip away at the US$ in course of time.The image of the US is at an all time low. China is breathing down its neck. Biden is scrambling to do anything to score a foreign policy win. Added to this, the US began to impose unilateral sanctions backed by the strength of the US$. The development of the world has till now been grievously impeded by Washington’s brutal and asphyxiating hegemony and repercussions are long overdue. There are signs that the global financial system dominated by the US$ could collapse.
“We sell ourselves aircraft in dollars. Is that really necessary? I don’t think so.” — Michel Sapin, Finance minister, France
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