There is no doubt that countries suffering from a crisis with the dollar will go for this option. The Chinese move is a direct challenge to the dollar-dominated pricing plan in crude oil markets in a bid to weaken the dollar as an international reserve currency.Ĭountries use the dollar to buy oil, but are there factors that could make this change? This depends on the extent of demand based on Petro-Yuan formula. On March 26th, 2018, China began trading crude oil contracts denominated in Chinese currency on the Shanghai International Energy Exchange. China’s way to block the dollarĬhina’s intervention of the yuan in international Petro-Yuan is also a key step that would aggravate dollar’s dominance, a move that could lead to huge changes in the global oil game, which could erode the dollar’s supremacy. Russian Foreign Minister Sergei Lavrov has earlier confirmed that Russia supported the use of local currencies instead of US dollar in his country’s trade transactions with other countries including Turkey, stressing that the role of the dollar as an international reserve currency would recede and disappear over time. On August 11, 2018, Turkish President Recep Tayyip Erdogan said that his country is currently preparing to use local currency in trade exchanges with China, Russia, Iran, Ukraine and other countries, adding that Turkey is ready to establish the same system with Europe if Ankara seeks a way out of the American dollar grip and dominance. Russia, Turkey and Iran have recently faced economic sanctions imposed by the US administration, which has had a direct negative impact on the economies of these countries, prompting them to seek trade in local currencies. Russia, Turkey and Iran seek exchange in local currencies. The number of those who reject American control, which is affecting the economies of many countries, has been increasing through the sharp drop in domestic currencies and high levels of inflation in these countries accordingly.ĪLSO READ: Is the world ready for eco-refugee waves? In the past, economists believed that the dollar’s control over financial transactions in the world is almost absolute this has changed since Trump has taken over US presidency. In other words, the weakness of exchange rates does not affect US hegemony. Thus, it is possible the dollar exchange rate would decline any time without affecting its dominance globally. It is important here to clarify the idea that the decline in the dollar exchange rate does not mean the decline of control because domination relies on the use formula of the currency in commercial transactions or international reserves and financial loans. According to an IMF report at the end of July 2017, the value of the dollar is overpriced by up to 20 per cent, based on fundamentals of the US economy. However, the dollar’s current exchange rate does not reflect its true value, which reinforces the idea that the US currency is fragile and can easily lose its value easily. As gold is compared to dollar, the US currency derives much of its strength from this outlook that allows huge financial flows into US economy. This has been clear in the past 8 months of 2018. Since 1971, many investors view the dollar as a safe haven for gold, and may even outperform it as interest rates rise. The dollar’s current exchange rate does not reflect its true value, which reinforces the idea that the US currency can easily lose its value easily Shehab Al-Makahleh Safe haven
Other currencies have been affected by the rise or fall of the dollar. When the then President Richard Nixon decided in 1971 to prevent the conversion of the US dollar to gold, declaring the collapse of the Bretton Woods Agreement, which has been a landmark system for monetary and exchange rate management that was established in 1944, the dollar has since then become the world’s first “benchmark currency”. Investments are moving in consistent with US dollar and the global economies center around American economy thereof, for how long will this last? The dollar has been the undisputed acknowledged master of international currencies since the end of World War II. Thus, any revamp in the major world currency would lead to a global economic tremor as the current trend of funds around the world directly depends on dollar value. More than 60 percent of world currency reserves are dollar based. The American currency accounts for about 85 percent of commodities and services traded worldwide. ALSO READ: Populism and protectionism, prelude to economic and political warfare
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