For more than eighty years, the US dollar has been the most dominant currency on the world stage. But now that the US economy is in trouble, there is a debt ceiling stalemate and the trade war with China continues, that position appears to be at risk. However, RaboResearch head Menno Middeldorp doesn’t think the dollar’s power will diminish significantly in the near term.
“A replacement world currency would threaten the dollar, but it’s not there yet”
“There is no substitute world currency. If there were, it would become a real threat to the dollar. But at the moment it’s not that far yet,’ explains Middeldorp. However, it’s not true that all trade in the world is conducted with the dollar as a means of payment, it puts that into perspective. “Sixty percent of transactions are billed in dollars, so that’s not all.” Yet there is no other currency that can match it.
Redeemable
The editor-in-chief Jasper Lukkezen of the economists magazine ESB can also confirm the power of the dollar. ‘It all started after the First World War, the British were too much in debt and the American economy was just emerging. That’s why we went from pounds to dollars,” he recalls.
But now that the geopolitical situation in the world has changed and power seems to shift more and more, questions also arise about the dollar as a world currency. However, Middeldorp sees that there is still no other convertible currency like the dollar. “If I have a dollar, I can definitely buy something and get in and out of a country.” This is not obvious.
Yuan and Euro
According to Middeldorp, emerging world power China’s currency, the yuan, is far less flexible. The Chinese currency has been undervalued to promote Chinese exports and industrialization. Furthermore, China has often imposed regulations on domestic and foreign investors in the past when the country has come under pressure. So you can’t lose the yuan anymore and you really don’t want to.’
“Europe has no liquid treasury”
According to Middeldorp, the euro is not a formidable competitor either: “Europe does not have a liquid treasury like the United States, which means there is no convenient place to store the euro together.”
Alternative currency
Lukkezen says that now that Russia has been excluded from the SWIFT payment system, the country is looking for alternative currencies together with other countries. “The Russians are looking for other ways to sell the ruble and trade with Iran in dirhams,” she explains. However, both Middeldorp and Lukkezen still have no fears about the dollar’s position as a world currency. “Such alternatives may bring down the dollar’s power somewhat, but they still pose no real threat,” says Middeldorp.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
