Sunday, April 30, 2023

The US Dollar is losing its dominance in international trade.

 

AFP.

The US Dollar is losing its dominance in international trade. AFP. The US Dollar has been used for almost everything but more and more countries are moving away from the currency. Many developing countries want to move away from the Dollar and go to other currencies. Brazil just made an agreement with China to provide contracts in Chinese Yuan and Brazilian Reals. And Bangladesh has used Yuan to pay Russia for a nuclear powerplant. The use of Dollars is a  major economic advantage for the United States but the economic sanctions on Russia has encouraged countries to move away from it. Those countries are concerned about similar sanctions or even confiscation of property, like the ones that happened to many Russian citizens. China is trying to position themselves as the inheritor of the countries moving away from the Dollar, but the Yuan has its own problems, most notably that China could easily devalue the currency. 

My Comment:

Losing the Dollar as the dominant currency would be a major problem for the United States. The article didn't really explain it but from what I understand the fact that every other country holds a large amount of US currency is a major reason why our economy is doing as well as it is compared to other countries right now. 

The main effect is that America can afford to borrow money at a much lower rate than it would otherwise. Should the dominance of the dollar go away the cost of borrowing money would increase and the economic damage would be intense. Indeed, it might even push America into an economic collapse. 

The worst part of this is that this wound was entirely self inflicted. The sanctions against Russia, which haven't worked at all by the way, are what caused this and for good reason. Every country that uses Dollars now knows that at anytime the US government could sanction them and steal their property. And given how out of sorts our government is it could be done over something as inconsequential as LGBT rights or trading with the wrong country. Why would any government take that risk?

Of course the idea that China will be the one that takes over for the Dollar is somewhat unlikely. China has their own problems the most obvious one being that they could devalue their currency at anytime. But that's not the only problem. China has their own stability problems and though they don't seem to care what any one country does it's very possible that they too could decide to punish other countries for arbitrary reasons as well. The most obvious one is the fact that a war with Taiwan could happen at anytime. 

I do think we are moving to a multi-currency world. I do think that the Eurozone will likely continue to hold large amounts of Dollars but the rest of the world? I'm not so sure. Like I said, people are afraid of the the Biden administration and do not trust them to do the right thing. It's possible that China, Russia and other countries will be the main benefactors of the decline of the dollar. 

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