Economics

De dominantie van de dollar is nog niet ten einde

Sep 19, 2023 Carla Norrlöf

TORONTO – Veel experts geloven dat de wereldwijde hegemonie van de Amerikaanse dollar, die al bijna tachtig jaar standhoudt, eindelijk ten einde loopt. Deze uitkomst is niet onmogelijk: economische crises, toenemende binnenlandse polarisatie en sterke geopolitieke tegenwind kunnen inderdaad uitmonden in de ineenstorting van de munt. Maar dat is niet waarschijnlijk.

Discussies over de toekomst van het internationale monetaire systeem gaan vaak voorbij aan de algehele dominantie van de ‘greenback,’ wat inzicht vereist in zijn rol op publieke en private markten, evenals in de verschillende prikkels om dollars te bezitten. Zolang zichzelf versterkende synergieën en vormen van opportunisme de overhand blijven houden, zal het moeilijk blijven om de gapende kloof tussen de dollar en andere valuta’s te verkleinen.

Er zijn zeker bedreigingen voor de suprematie van de dollar. Het primaat en de alomtegenwoordigheid van de greenback in het wereldwijde financiële systeem is een belangrijk twistpunt geworden in de grootmachtstrijd tussen de Verenigde Staten, China en Rusland. Deze geopolitieke uitdagingen spelen zich af tegen een achtergrond van hoge rentetarieven en de gepolariseerde Amerikaanse politiek, die eerder dit jaar de slepende onderhandelingen over het Amerikaanse schuldenplafond veroorzaakten; samen dreigen ze de gepercipieerde veiligheid van dollaractiva te ondermijnen. Maar om de greenback uit het zadel te wippen, moeten meerdere actoren een substantiële valutaverschuiving ondersteunen.

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0 Comments on this paragraph, 11 Comments on this article

vic lai Sep 21, 2023

Well, in our present information-age and highly-digitalized real world, something mostly regarded as highly unlikely can crop up suddenly, to the ultimate surprise of most close watchers under the sun.
The latest example is China's seemingly much-faster-than-expected eventual breakthrough in her ability to produce much more advanced semiconductor chips, almost entirely without foreign help.
So, nowadays, nothing can be taken for granted, at least not for very long.
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There're currently at least 2 newly-cropped-up phenomena that seem to me to be non-trivially changing the nature of the good old US dollar's continued global dominance in the rest of this century.
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(i) The US's probable persistent reshoring strive, now and far into the future, will be continuously at odds with the good old circular flow of the US dollars in the global Eurodollar ecosystem, first from the US to the rest of the world, and then mostly back to the US, thanks to the country's non-diminishing and massive deficit trade accounts month-in and month-out, year-in and year-out.
This recycling will also be diminished by the US's shale-energy revolution in the past decade, since the country will no longer have to import expensive oil and gas from the OPEC countries, and she can even start exporting very expensive shale gas to the EU countries following the breakout of the war in Ukraine in Europe.
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(ii) Bretton Woods II (fiat currency/SWIFT/Eurodollar-ecosystem) centered on the US dollar may/will have to compete more and more with newly-cropped-up Bretton Woods III (commodity-energy-bullion currency/CBDCs/Belt-and-Road-Initiative ecosystem) perhaps centered on China's yuan, on the same planet and in the foreseeable future.
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Note that,
(a) according to a book by David Graeber, our world's history or civilization in the past 5000 years can be regarded as a successive alternation of the widespread use of credit and bullion money under the sun.
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(b) China (and other trade-surplus EM countries) may use her lavish remaining US-dollar FX reserves to mainly finance her Belt-and-Road Initiative in the future, to cater for the money needs of the numerous developing EM (and even DM) countries participating in the Initiative, rather than to keep buying all the treasuries newly issued by the more-and-more indebted US federal government in the coming years/decades.
So, the good old global circular flow of US dollars mentioned above may become a (much) smaller sea-tide than in the good old days, and the US's coming harvested fruits from the US dollar's continued full-spectrum dominance may have to be shared with China (and other EM countries) in the future.
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(c) the switch to BW III from BW II, initiated by the EM countries perhaps led by China, will continue to be prompted or accelerated by the US's non-stop use of her US-dollar dominance to (further) sanction Russia during the non-stop Ukrainian war, say through the freezing or confiscation of the latter's FX reserves.
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If the US in the coming years chooses to finance her quickly-rising national debts with more and more help from the US Fed's new-money-printing QEs instead, the result will be higher-than-normal Main-Street inflation in the country, and also the continuous debasing of her own coins, perhaps resembling the latter part of the declining Roman Empire 2 millennia ago.
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- vic lai Sep 21, 2023
  
  It can be said that, the US dollar's ongoing globally hegemon status, ever since the start of BW II in the last century in general, and since the third Industrial Revolution originated in the US in the 1990s in particular, during which the fiat US dollar has no longer been backed up by gold, has owed a lot to the country's "highest-technology leading --- military global dominance --- hegemon global currency" mutually-reinforcing-and-guarding positive feedback loop.
  -
  But, as time goes by, ceteris is no longer always paribus, and so, especially in recent years, thanks particularly to the super-quick and increasingly challenging rise of renaissancing China in both of today's highest-tech and military global arenas, the above mutually-reinforcing loop, fully being enforced by the US all the time for obvious reasons, is now increasingly showing signs of more and more weakening strength, whether today's US herself likes to admit it or not.
  ---
  In particular, due to one reason or another, the US's traditional global lead in the all-important ICT sector has in recent years been showing some non-trivial danger signs.
  China is now showing more and more solid signs of transforming from further real-world applications of 5G to the brand-new real-world applications of 6G, as shown by Huawei's latest debuted cellphones, which are now able to provide the twin services of easy satellite communication and Internet of Things ------ both a sign of the world's coming highest-tech 6G technology.
  -
  But currently, the US and many of her ally countries seem to be stilll having a hard time figuring out how to further develop and install thier non-Chinese 5G facilities in their real economies, let alone further touching those brand-new 6G ones.
  Not to mention the new energy global sector, in which today's China also seems to be having a leading edge as well relative to her western counterparts.
  -
  The above may mean that, perhaps in the near future, the globally hegemon US dollar may no longer be solidly backed up by the above sorely-needed positive-feedbak loop any more, which in turn may prompt the gradual rise of ever more and more competing foreign currencies to start sharing the gravy cake now eaten mostly by the global Eurodollar market ------ particularly if both China and the EU boldly and quickly start to issue more and more central government and EU treasuries of their own respectively, to help both the yuan and the Euro to greatly challenge the US dollar's good old reserve currency (safety-asset) global status in the rest of this century.
  ---
  - vic lai Sep 21, 2023
    
    Instead of running much faster herself than before in the ongoing fiercer and fiercer global ICT and New-Energy Marathon race, the US has instead chosen to unilaterally impose more and more sanctions and limitations of all imaginable kinds on quickly chasing (and also leading) China in that race, which lately seems to have been proven not to be (very) deadly for China, given say Huawei's latest seeming advanced-chip-making breakthrough.
    -
    Some US entrepreneurs, especially those currently being able to export high-tech products to China if they are allowed by the US government to do so, have therefore made the alternative suggestion that the US should have massively dump-sold their advanced semiconductor chips in China to begin with, to much more effectively prevent those quickly-chasing Chinese enterprises from keeping on competing or even surviving in those global markets.
    ---
    Massive dumping by the imperialist countries of their self-produced products (very) cheaply in their previous colonies in the past centuries, and the similar dumping by the same DM countries of their self-produced (much) cheaper products in most of today's EM countries, have always shown to us to be the most effective way to suffocate the rise or further development of similar competing industries in those chasing colonial or EM countries.
    But this time is probably different so far as today's quickly-chasing China is concerned, since the DM countries' same dumping strategy may no longer work in today's China.
    Why ?
    -
    This is mainly because, today's China is the only country on this planet that has already established in her own territories all kinds of big and small, upstream and downstream interrelated and interconnected manufacturing factories and assembling plants of all varieties, according to the United Nation's full industry classification.
    And so, say for example, the US's otherwise massive dumping of (much) cheaper advanced semiconductor chips in today's China may be able to eventually suffocate Huawei-et-al's ambitious EUV-self-manufacturing attempt, but doing so will at the same time also greatly benefit at least some of China's cell-phone-making-and-selling downstream industries, like Xiaomi-et-al (and Huawei as well), ultimately to the detriment of cellphone-selling Apple Inc (and also SK's Samsung).
    ---
    - vic lai Sep 22, 2023
      
      China's Beijing government can now seriously consider gradually repealing the massive exports tax rebates given to the country's exporters each year, by gradually withdrawing from the exporting EM countries' race-to-the-bottom global race in the coming years, and use the recovered fiscal funds to
      (i) help those Chinese workers who will be losing their jobs in the affected exports industries, say by training them to do other jobs, and
      (ii) subsidize further say Huawei-et-al's coming highly expensive R&D and other pioneering yearly investment spending.
      -
      Meanwhile, some forms of trade protectionism has to be started to be imposed by free-trade-promoting China, especially in her infant- or chasing-technology areas, to prevent the foreign leading high-tech companies from massively dumping their much cheaper manufactured products in China's quickly expanding and promising domestic markets.
      ---
      - vic lai Sep 22, 2023
        
        It seems increasingly likely that
        (i) the good old globalization-on-steroids-assisted "Sea-Power Age" centered on the US (and her ally DM countries) may/will have to be diluted, in the rest of this century, by the coming possible revival of the deglobalization-and-Belt-and-Road-Initiative-assisted "Land-Power Age" perhaps centered on China-cum-Russia, and
        (ii) the continued future global dominance of the US dollar relative to any other rising challenging foreign currency (if any), will/may no longer mean the same gravy global GDP cake in the future decades that can continue to be mostly eaten by the US-et-al anymore, as just described upstairs.
        ---
        In other words, more simply speaking, in the rest of this century, the richest US and her ally DM countries, whether they like it or not, will increasingly have to share their richness with more and more quickly rising, relatively united, and challenging wanting-to-get-richer-and-richer EM countries in the rest of the world, irrespective of whether the US dollar can keep her full-spectrum dominance under the same sun at that time.
        -
        Which may mean, what really matters in the future isn't whether the US dollar can keep her good old global hegemony on this planet, but whether the US and her ally countries can keep uniting together and succeed in preventing the future overall global terms of trade from tilting too far towards the having-more-bargaining-power developing EM countries and against themselves at the same time.
        ---
        
        vic lai Sep 24, 2023
        
        In the foreseeable future, other developing EM countries can also learn from China's decades-long strict capital control, by welcoming only genuine FDI long-term investments of all kinds in their real economies, and resisting at the same time most short-term portfolio and speculative capital inflows from the DM countries into their virtual economies (including their real-estate markets), given
        (i) the coming expected declining global US-dollar sea-tide,
        (ii) China's Belt-and-Road Initiative, through which sorely-needed developing funds can also be obtained by the EM countries through China's Asian Infrastructure Investment Bank.
        ---
        Doing so, those capital-account-protecting EM countries will have a much smaller chance of being financially harvested once again by the US(et-al) in the coming years, like what those capital-account-opening Asian countries had unfortunantely experienced in the Asian Financial Crisis of the late 1990s.
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        If so, the continuing global dominance of the US dollar on this planet in the coming decades will no longer matter as much to the rest of the world as in the US's good old days.
        ---
        
        vic lai Sep 24, 2023
        
        While the Ukraine-War-induced massive capital and energy-dependent-real-industry outflow from Germany and other affected EU countries to the US (and China) in recent quarters has further strengthened the US dollar relative to the challenging Euro in the global currency markets, it has also helped open the gate for China's more and more sophisticated EV cars to start conquering the western Eurasian land there.
        -
        If Germany and France continue to impose stricter protectionist limitations on China's exported EVs in their own economies, China can also choose to conquer also the original auto markets say in other (EM) countries originally dominated by Germany-et-al, thereby keeping on increasing her own overall market share in the global auto markets.
        -
        Which means, in the longer run, the global currency market share of the Euro will partly be replaced by that of China's yuan.
        ---
        
        vic lai Sep 24, 2023
        
        For a typical non-US (especially EM) country, domestic cropping-up and aggravating inflation, which usually prompts her fine-tuning central bank to start a new rate-hiking cycle to help fight runaway inflation, will usually be acccompanied by a sustained and non-trivial depreciation, rather than appreciation, of its own currency relative to most other foreign currencies.
        But not for today's US dollar, which so far has been able to maintain its more-or-less consistent and persistent trend of non-trivial appreciation vis-a-vis most other DM and EM foreign currencies.
        -
        This observed real-world phenomenon has continued to support the ongoing claim of undiminished global dominance of the US dollar, which in turn has also been further invigorated by the safety-seeking and risk-avoiding capital inflow from the rest of the world into the US as a result of the ongoing war in Europe, thereby further supporting the US's booming virtual economy, her unabated positive wealth effect from the still-booming say stock and residential real-estate markets, and hence the non-declining average propensity to spend by the US consumers, and so keeping on delaying the eventual arrival of a new credit event and a Godot-like economic recession in the country.
        ---
        
        vic lai Sep 24, 2023
        
        Many people don't quite understand that, while the US is keeping on "printing" new US dollars and new US government treasuries en masse, why do so many (foreign) people under the sun continue to use the US dollar as the world's main global currency ?
        ---
        According to a Chinese Youtuber, without military breakthrough in China, the maximum share of China's yuan in the global currency market can never exceed 7% or so.
        Why ?
        -
        If the yuan's share ever exceeds 7% one day in the future, then the US is a fool indeed, since the US's existing highly-expensive few hundred overseas military bases are being used not to promote the coming global status of the Chinese yuan, but to keep defending the US dollar's good old unchallenged global hegemon status.
        Which means, no matter how far China further advances, in the best possible manner, both her technology and financial capabilities in the near future, the further advancement of her yuan in the global market has already or mostly reached its topmost dead end.
        ---
        In other words, any foreign country that can set up her own military bases in today's Canada can also, like the US , abuse her own new-money-printing power, for at least a consecutive 50 years into the future, without encountering any non-trivial problems whatsoever.
        The fact is that, a rising challenging country's economic capability in the global market is restricted and hence locked up by her own uppermost military prowess.
        -
        It's also said that, currently, Russia has 20 foreign military bases, while China has got only one.
        Which means, today's US political elites can actually put their hearts at ease, and shouldn't be so sensitive to say rising China's challenges of all kinds, especially when the coming continued global dominance of the US dollar is concerned.
        ---
        
        vic lai Sep 24, 2023
        
        Similar to the US's recent strategic selling of her oil reserves in the country to help suppress the domestic inflation rate, her non-trivial net-selling of gold in the near future, if any, can also suppress the future strength of gold in the global market.
        -
        Currently, China's demand for gold, which has partly replaced her demand for US government treasuries recently, has been quite strong.
        This should have been a result of
        (i) the world's relative geopolitical instability as a result of the ongoing Ukraine War in Europe, which has further strengthened the "safety-asset" attribute of gold,
        (ii) the rising economic and geopolitical tensions in all areas between the US and China,
        (iii) the US Fed's latest rate-hiking cycle and China's contemporaneous rate-lowering cycle,
        (iv) a result of Beijing's strategic diminished buying of US's government treasuries,
        (v) a way for China's middle-class people to invest in another kind of safety asset in the country, in which the supply of safety assets (like the Beijing government's treasuries) has always remained relatively scarce,
        (vi) an indirect way for the domestic Chinese people to evade the government's strict capital (outflow) control.
        -
        From the related data, the cost of producing an ounce of gold varies from 900 to 1,500 US dollar, which means roughly an average production cost of 1,200 US dollar per ounce, which is much lower than the latest gold price of 1,926 US dollar.
        The US's coming deliberate suppression of the world's gold price, if any, may/can further strengthen the foreign countries' demand for US treasuries, thereby helping to suppress the further upward movement of the US's (long-end) treasury yield curve, revert the country's current bear bond market, and so maintain the global dominance of the US dollar.
        ---
        The US's refusal to sell gold may be a result of the government's consideration that the US treasury yield curve will as a result maintain her rather steep inverted shape, to the detriment of the country's SME commercial banks.
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Joe Ryan Sep 20, 2023

The more likely and more interesting course of events would be for additional countries to adopt the USD or EUR, making each of those two currencies even more multinational than they are now.

Closer coordination between the USD and EUR authorities, as well as between monetary authorities in East Asia, also seems fairly likely.

Both of these developments would tend to further globalize the international monetary system.

In other words, although (as Prof. Norlöff says) the USD is unlikely to be fired, it could well work itself out of a job.
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