At a time when economists warn of the danger of making the US currency a weapon, questions arise whether the dollar will remain in its position as a global reserve currency, after nearly 80 years of its dominance, with Russian and Chinese attempts to compete in this field, according to an analysis of the network. “CNN“.
About 60 percent of global currency reserves, amounting to 12.8 trillion dollars, are currently held in dollars, which gives the United States a great advantage over any other country, especially since the debts of the American government, in its own currency, so if the dollar loses its value, the debt will also decrease, Also, US companies can conduct international dollar transactions without having to pay a transfer fee.
In some circumstances, the United States may resort to preventing the dollar from reaching some central banks in any country in the world, which leads to isolating and draining their economies, making it an “economic weapon of mass destruction.”
The United States blew up this weapon in Russia in February after Moscow invaded Ukraine, freezing $630 billion in foreign exchange reserves and severely undermining the value of the ruble, which gave Washington the ability to punish Russia without involving American forces in the war.
But with great power comes great responsibility. When a weapon of mass destruction is used, even if it is economic, some panic, and they resort to protecting themselves from the same fate as Russia one day, as other countries diversify their investments away from the US dollar to other currencies.
Researchers believe that making the dollar a weapon may lead to its decline in the future.
A new research paper, prepared by the International Monetary Fund, finds that the dollar’s share of international reserves has continued to decline over the past two decades. It began as the United States launched its war on terror and its anti-terror sanctions.
Since then, some dollar reserves have been converted into the Chinese yuan and the currencies of smaller countries.
The contributors to the paper caution that these observations may give us a glimpse into what the international system could evolve into in the future.
With the United States leading the global economy, Russia and China also hope to guide the evolution of the international system.
On Thursday, Russian President Vladimir Putin threatened to stop gas exports to countries that do not open an account in a Russian bank and pay in rubles, at a time when the European Union gets 40% of its gas and 30% of its oil from Russia.
Meanwhile, reports indicated that Saudi Arabia is in talks with Beijing to accept Chinese oil sales in yuan rather than dollars.
So the question remains… Is the overthrow of the US currency imminent?
Although nothing is impossible, as the past two years have taught us in light of the Corona epidemic, the possibility of the United States losing the privilege to lead the dollar is highly unlikely, according to CNN.
Network analysis attributes this to the fact that the alternatives are not great.
China has been putting pressure on the yuan for years. Only about three percent of global transactions take place in this currency, compared to 40 percent in dollars.
The United States also remains somewhat investment attractive to the rest of the world.
For example, the US stock market is the largest and most liquid stock market in the world, and foreign capital flows into the country. While global foreign direct investment flows grew 77 percent to an estimated $1.65 trillion in 2021, investment in the United States rose 114 percent to $323 billion, according to the United Nations Conference on Trade and Development.
But the network, according to analysts, says that the second quarter of this year may be turbulent, with the continuing Russian invasion of Ukraine, high inflation, and an acceleration of the Federal Reserve’s plan to raise interest rates, which creates a series of unique challenges for investors.
During the first quarter of 2020, which ended this week, major stock indexes posted their worst performance in two years.
While some are looking to invest in the energy, commodity and crude products markets due to the impact of the war on Ukraine, some prefer not to bet on oil and energy because their prices are volatile.
After the Russian invasion of Ukraine surprised markets around the world, the turmoil spread across energy and commodity markets, and even issues of food insecurity.
Others argue that it may be time to look at real assets as a hedge against inflation, meaning investing in goods, real estate, land, equipment, and natural resources.