Finance Monthly - May 2023

IT IS TOO EARLY TO BET ON KING DOLLAR’S DEMISE The first reason is an obvious one. Most of the global debt is denominated in USD and to repay this, you need to have access to U.S. dollars. It’s true for all the major economic powers, even China, whose first loans as part of the New Silk Road were issued in USD. Secondly, military hegemony and monetary power are strongly connected. The stronger are the military ties of a country with the U.S., the more said country is dependent on the U.S. dollar. Research conducted by Fed economist, Colin Weiss, shows that ¾ of the global U.S. dollar reserves are held by countries with strong military ties with the United States. Even if the dollar was used less in global trade (which is an unlikely scenario), it wouldn’t necessarily mean that the dollar would lose its status as the main international store of value precisely because of the U.S. military hegemony. Thirdly, there are several structural factors that support a dollar-centric international monetary system (rather than a yuan-centric one): • The dollar is extremely liquid, the yuan isn’t. • The yuan is pegged to the dollar. • The United States is still the most powerful country in the world from a military and economic standpoint. • The United States is also the largest oil producer in the world. We are most likely stepping into a more decentralised global monetary system where the U.S. dollar will remain the main reserve currency next to many other competitors, Pierre-Antoine Dusoulier, CEO at iBanFirst Emmanuel Macron’s recent claim for European strategic autonomy collides with an unavoidable reality: the U.S. dollar’s supremacy. Is “de-dollarisation” possible? For Pierre-Antoine Dusoulier, CEO at iBanFirst, this won’t happen in our lifetime. Here’s why. such as the yuan. This is a healthy and normal development for the global economy, but especially for the U.S. economy. It’s not a good situation to have all other countries reliant on the currency of one single country. It creates imbalances both for them and for the United States. However, there is one last point that could flip the strong dollar trend. We know that the dollar hegemony increases the United States’ import power and decreases its export competitiveness. It expands the country’s soft power at the expense of deteriorating its domestic industrial capacity. In a nutshell, the global diversification of central bank reserves and payment rails is bad for “USA the Empire” but not bad for “USA the Country”. Finance Monthly. Business & Economy 35

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