/Pogled.info/ The American currency is pushed out of the state reserves due to the aggressive foreign economic policy and the huge foreign debt of the USA. And there is no need for savings in floating rate dollars. Emerging markets are shifting to payments in national currencies. Economists are certain that the financial world will never be the same again.
Doubts about stability
In the report “The Future of the Monetary System”, analysts from the research institute of the Swiss bank Credit Suisse point to the loss of confidence in the American economy. This is facilitated by accelerating inflation, a huge budget deficit ($1.3 trillion) and unsustainable external debt ($31 trillion, 121.5 percent of GDP). In addition, no one likes attempts to use the dollar as a weapon in an economic confrontation.
“Macroeconomic imbalances have strengthened significantly. In addition, geopolitical tensions have escalated in recent years. The likelihood of a large-scale abandonment of the US dollar is increasing,” the authors of the report note.
Pushing out of reserves
If in the 1970s the dollar represented 80 percent of world reserves, then in 2022 it is only 58.8 percent, a minimum for the last 20 years.
In the conditions of a floating exchange rate, the use of reserves as a protective mechanism against the devaluation of the national currency is no longer relevant. With a consistent monetary policy, the market itself finds equilibrium at the optimal point, analysts point out.
Moreover, globalization means that many countries, rather than resorting to “pre-funding” dollars to deal with crises, can simply access them “on the fly” when needed.
“For those paying for imports in a non-US currency, the Central Bank could depreciate dollars and instead acquire the currency of major trading partners,” the report explained.
Financial blocks
Economists consider Russia’s trade alliance with China and India a prime example. Last year, Moscow, Beijing and then Delhi switched payments to the national currency. Chinese and Indians pay for Russian products exclusively in yuan and rupees. Accordingly, the status of the dollar fell.
“Diplomatic and military conflicts are changing international trade. World powers are forming their own financial and economic blocs. Over time, new currencies may emerge that simplify mutual payments within these blocs,” says analyst Yevgeny Shatov.
A new hegemon
After analyzing all processes, Credit Suisse identified several scenarios. Including the emergence of a world currency or a new hegemon. However, both options are unlikely.
The first option requires political unity, which is definitely not in sight. And now there is nothing else to replace the dollar.
For, say, the yuan to qualify for this role at all, its share of international trade would have to grow exponentially from its current three percent. Now its importance to the world is extremely limited, it is not a full-fledged convertible currency. In addition, the exchange rate is highly dependent on the actions of the People’s Bank of China.
The most likely scenario is the emergence of a multipolar financial system. This will be supported by the expansion of trade in national currencies, the development of regional capital markets and insurance mechanisms against shocks caused by US monetary policy. The BRICS, for example, have already built up a pool of foreign exchange reserves.
Currency zones
At the same time, in the long run, a supranational currency is entirely possible.
“The accelerating division of the world into economic and political blocs along the USA-China lines will also lead to currency fragmentation. This has already happened in history. It is enough to recall the fierce struggle between the USA and Great Britain in the second half of the 19th century. In at a certain point it will temporarily break up into two or more zones,” suggests economist Alexey Fyodorov.
The options, according to him, can be different: yuan and dollar, yuan, dollar and euro or something else – it all depends on the degree of destructiveness of the confrontation between China and the US, as well as the subjectivity of individual regions.
“For example, we hear statements about the single currency of Brazil and Argentina, in the EAIS countries, a unit of account tied to gold for Russia’s trade with Iran and so on. All this is for a transitional period until the winner of the battle between the US and China is revealed . When that happens (no earlier than 2035-2040), the world will get a new reserve currency,” the economist claims.
However, the reserve currency is always a dependency of another country. Therefore, the world may prefer a single supranational currency. It is possible to be digital, issued by the central bank of different countries under certain conditions.
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