“Moody’s predicts US dollar to maintain dominance as global currency despite challenges”

Moody’s indicated, in a research note issued on Thursday, that the US dollar is expected to maintain its position as the dominant global currency in international trade and financial markets.

These expectations come in anticipation of the BRICS summit next August, which is supposed to resume discussion of launching a unified global currency, in an effort to reduce dependence on the US dollar as a reserve currency and as a mediator in commercial transactions. Noting that the BRICS group, which includes Russia, China, Brazil, India and South Africa, seeks through this step to challenge the dominance of the major industrialized blocs, especially the United States of America, over the global economy.

Moody’s indicated in the note that it expected the emergence of a multipolar monetary system within the next few decades, but the US dollar will remain in the leadership position of this monetary system, as other currencies will struggle to compete with the dollar’s range of use, safety and full convertibility. On this basis, the dollar is expected to face serious challenges in the face of monetary multipolarity, but it will not lose its advanced position in this system.

The agency indicated that this fact does not negate the existence of serious risks to the US dollar in the short term. The US trend towards protectionism, the weakening of government institutions, and the risk of defaulting on government debt are all factors that would weaken the strength of the dollar in global financial markets.

In the event of a default on US debt in the short term, it is expected that the reputation of US Treasury bonds as a risk-free asset will be damaged, even if this debt is paid and settled later. Noting that US officials indicated yesterday, Thursday, that they had made some progress in the negotiations aimed at increasing the US debt ceiling, to enable the United States to continue borrowing and paying off its debts, but they did not announce that Congress and the US administration had reached an agreement on that, despite the approaching time to run out of liquidity. cash at the Treasury.

The Moody’s report indicated that the agency’s analysts expect that US politicians will be able to reach an understanding to “raise or suspend the debt ceiling, and avoid defaulting on government debt.” However, the agency noted that “the increasing polarization of the domestic political environment over the past decade weakens the effectiveness of US policy-making.” This poses a serious challenge to the USD’s position in the short term.

The report also indicated that the sanctions that prevent the free flow of dollars in trade and finance globally could encourage countries of the world to further diversify money and deal in other currencies. This represents another current challenge facing the widespread use of the US dollar. The report confirmed that central banks around the world reduced the share of holdings of the dollar as a reserve from 71% in 2000 to 58% today, while strengthening their holdings of the yuan, Australian and Canadian dollars.

However, at the same time, the report concluded that there are no practical alternatives capable of overthrowing the position of the US dollar in the global financial system, especially in light of the low costs of dollar transactions, the liquidity of the US currency and its ease of use in various financial markets, and this proves the advanced position of the US currency in the markets over Long-term.