Undoubtedly, most countries fed up with the US policy of using Dollar as geoeconomics weapon wish to jump on the wagon of de-Dollarizing and are willing to achieve it fast. However, wisdom dictates that they need to be patient as there is not going to be any sudden collapse of Dollar dominance, if we are to believe, Treasury Secretary Ms. Janet Yellen.
In a tacit admission Ms. Yellen went on thus: “We should expect over a time a gradually increased share of other assets in reserve holdings of countries, a natural desire to diversify. But the Dollar is far and away the dominant reserve asset”. Is there a viable alternative to replace Dollar as a reserve currency? Other than gold there is so far no fiat currency unveiled that can boast the vital feature of store of value, as Dollar demonstrated since the end of WWII and getting another booster shot via Dollar – Security arrangement initialled between USA & Saudi Arabia in 1974. It brought another beast concurrently: Petrodollar.
In a way Ms. Yellen sounded arrogant when she dismissed the efforts by global south, creating an alternative for US Dollar as a reserve currency, “Virtually no meaningful workaround for most countries for using Dollar as reserve currency”. Other than grumbling and musing, global south can no way find any alternative system, yet alone someone to lead it. This is because US Dollar is a product that is being guarded by the so-called “Rules based International system” that binds about 35 vassals and other allied nations.
A reserve currency has to offer three related benefits to the users. One is the medium of exchange, in common parlance ascribed as “trading currency”. Secondly it must have a store of value where the holding gives the assurance that at the time of redeeming one gets the value unimpaired, call it as “reserve currency”. Third one is it must function as unit of account.
Nearly 60% of international trade is conducted via US Dollar and it accounts for more than 80% of the foreign exchange trading. End 2022 Dollar accounted for 58% of international reserves whereas gold ranged from 7 to 17% across the globe. Almost all the nations and business enterprises render their accounts in US Dollars. Admittedly, Dollar scores pretty well in the three main functions of money. More to it: Dollar has stability, safety and liquidity which afford added clout. So far no other currency can boast of the excellent functionality that Dollar has in geoeconomics power spectrum.
Nevertheless there is no hiding from reality. Dollar is on slow and steady decline. From 90% of share in international trade in 1970s to 60% at present means almost one third of shedding weight. Besides, the decline is not only attributed to the ganging up of global south but also due to lack of backing by tangible assets like gold and massive Dollar debt raised by America.
Geoeconomics spectrum is witnessing the emergence of Petro Yuan as Saudi Arabia chose Yuan in addition to Dollar for the sale of her oil. After a century of unassailable strength, Dollar has to give way to a host of currencies issued by global south for vital oil trade. Ms. Yellen recognises that a major assault in geoeconomics is brewing outside the shores of America. Will her sober attitude forestall the crusade against the dominance of Dollar?
Cheers!
Muthu Ashraff Rajulu
Business Strategist
Mobile: + 94 777 265677
E-mail: cosmicgems@gmail.com
Blog: Business Strategist
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