If not the dollar then what? The outlook for the US currency is better than it seems

If not the dollar then what?  The outlook for the US currency is better than it seems

Is the US dollar falling? It is a question filled with wonder and awe Disbelief Since the beginning of the global financial crisis, speculation by financial advisors about its fate has been widespread with the idea that the collapse of its position as the world’s dominant currency may be critical. imminent.

The logic seems consistent: the United States faces a High and increasing public debtand risks arising from the Fed’s unconventional and aggressive use of monetary policy and political chaos. These factors could lead to expectations of an economic decline, which would erode the importance of the dollar. However, it can also be said that the financial crisis has already occurred Strengthen The dollar’s position as the world’s dominant store of value. It is true that its role as a trading currency can decline over time. Financial markets and technological developments make it easier to carry out international transactions in other currencies. But dollar-denominated financial assets, especially US government bonds, still exist Favorite destination By investors who want to protect their investments.

How could the financial crisis, whose epicenter was in the United States, have an impact in strengthening the dollar’s ​​grip on global finance? Because demand for safe assets has risen, even if their supply has fallen in the rest of the world. It has made America the dominant supplier.

The US dollar continues to assert its position Dominance Simply because it’s around Nothing is better. What can you buy in its place? And the euro, whose value has exceeded the dollar for a year now (and after almost twenty years), and in light of the Old Continent’s struggle with the war in Ukraine and the energy crisis? British pound, and then Britain’s exit from the European Union Isn’t he in better shape? The yen is in free fall as a result of central bank policy engaging in financial operations aimed at weakening its currency? Chinese yuan when China Drains The real estate crisis represents a major geoeconomic risk? Or the BitcoinAs volatile as a NASDAQ-listed tech startup?

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Government bonds from many other economies appear, such as the Eurozone, Japan and Great Britain More mysterious In the situation that arose after the financial crisis. Emerging economies have a stronger incentive than ever to accumulate foreign currency reserves to protect themselves from the consequences of volatile capital flows. So the US currency’s prospects look better when a fundamental question is asked: If not the dollar, what?

Yet we fall into the trap of imagining an unstable equilibrium that entails significant risks to the global economy. The “dollar trap” makes us imagine different scenarios of extreme situations that could lead to a decline in the value of the US currency. But if we look at it more closely, it becomes clear that these scenarios would result in harmful consequences for every country in this world. The fear of the destruction this would bring is paradoxical Sticky. All of this has important implications for companies. Entrepreneurs should expect that business and financial transactions will increasingly be conducted in the currencies of the countries concerned rather than the dollar. As capital flows and currencies become more volatile, hedging against multi-currency exposure will become increasingly important.

For entrepreneurs from the Old Continent, the weakness of the euro against the dollar has theoretical implications Both positive and negative. On the one hand, it becomes easier to export our goods, since the price seen by consumers abroad is lower. This could benefit, for example, the tourism sector, since European destinations would be reserved for American travelers Less expensive Compared to recent years. Likewise, traveling or purchasing goods from the United States becomes more expensive.

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Present Economic inflation However, it risks nullifying the benefits of the situation and highlighting its negatives. In fact, increases in raw materials lead to increased production costs for companies, which may not be offset by increased exports. At the same time, inflation threatens to increase the prices of US goods for European consumers.

Not only that, we should also expect to see the value of the dollar Eat again In decline Compared to the currencies of emerging economies due to differences in productivity growth between the United States and these economies. But we do not expect the dollar’s dominance to decline. Mainly due to the desire to find a better alternative, it will remain the dominant reserve currency for a long time to come.

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