All articles tagged with #dollar dominance
The recent legislation on stablecoins, which mandates they be backed by safe assets like U.S. Treasuries, could inadvertently trigger a financial crisis by increasing foreign capital inflows, exposing banks to crypto sector risks, and reinforcing dollar dominance, ultimately heightening the likelihood of systemic banking issues and global economic instability.
The BRICS (Brazil, Russia, India, China, and South Africa) lacks the cohesion in values, geopolitical interests, and broad economic interests required to play a steering role for the global economy and act as an effective counterweight to existing structures. While China's dominant role in the group reflects its economic power, the BRICS members have divergent geopolitical interests and values, making it difficult for them to form a united front. Additionally, the idea of creating a BRICS global currency is unrealistic given the lack of compatibility among their economies and the renminbi's limitations. Overall, the BRICS lacks a positive agenda and is too diversified to assume global leadership.
Developing countries, including members of the BRICS bloc, are expressing frustration with the dominance of the U.S. dollar in the global financial system and its potential for destabilizing their economies. While there have been discussions about expanding trade in local currencies to reduce reliance on the dollar, concrete proposals for alternative currencies have not yet emerged. Critics argue that the dollar's influence allows the U.S. to impose financial sanctions and that fluctuations in its value can cause economic chaos abroad. However, the alternatives to the dollar remain limited, with the euro and China's yuan not rivaling its international gravitas. The dollar still has its supporters, particularly in countries like Argentina and Zimbabwe, where it has provided stability amidst economic challenges.
Emerging economies, including the BRICS bloc, are expressing dissatisfaction with the dominance of the US dollar in the global financial system. However, finding a viable alternative to the dollar has proven challenging. While discussions have taken place about expanding trade in local currencies, concrete proposals have yet to emerge. The dollar remains the most-used currency in global business, accounting for a significant majority of trade invoicing. The euro and China's yuan have made some inroads, but they still fall short of challenging the dollar's dominance. The path to a new currency and a major upheaval in the global financial system is seen as long and requiring trust.
India and the United Arab Emirates have completed their first oil trade without converting currencies to dollars, using the Local Currency Settlement (LCS) system established by a Memorandum of Understanding (MoU) between the two countries. The LCS system allows bilateral trade using the rupee and dirham, reducing costs and speeding up transactions. This move away from the dollar in global oil trade could have negative implications for the United States, as the majority of global oil sales are currently priced in dollars, ensuring constant demand for the currency. Other countries, such as Saudi Arabia, have also expressed openness to discussing trade in currencies other than the US dollar. While the dollar's role as the world reserve currency is not immediately threatened, the trend of de-dollarization could pose challenges in the future.
Nobel Prize-winning economist Paul Krugman said that the dollar's dominance of global trade and investment flows is overrated, and isn't worth more to America than "a fraction of 1% of its GDP". Krugman advised it would be best to ignore all the "dollar doomers" out there and instead question what "hyping of a nonissue says about their own judgment." He also criticized Elon Musk for being among those who are warning the US is "weaponizing" the dollar through financial sanctions and that such measures are threatening to undermine the greenback's supremacy.