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Crisis Prophet Roubini Wrote Down The Factors That Made The Dollar Weak And Strong
Prof Dr Nouriel Roubini, who predicted the 2008 global economic crisis, wrote a striking article on the global sovereignty of the dollar.
Yazar: Tom Roberts
Yayınlanma: 25 Ağustos 2020 22:32
Güncellenme: 16 Kasım 2024 02:22
Crisis Prophet Roubini Wrote Down The Factors That Made The Dollar Weak And Strong
Prof Dr Nouriel Roubini, who predicted the 2008 global economic crisis by determining that there was a problem in the repayment of home loans in the USA, wrote a striking article on the global sovereignty of the dollar.
"Is the Almighty Dollar Slipping?" In the article published on the Project Syndicate site the day before, it was reminded that the sharp decline of the US dollar against the world's leading currencies has caused concerns that it will lose its main global reserve currency role.
THE STRONG SIDE OF THE DOLLAR
* In the medium and long term, many factors can ensure that the dollar maintains its global hegemony. The dollar will continue to benefit from flexible exchange rates, limited capital controls, and the broad-based system of deep and liquid bond markets.Moreover, there is no distinctly alternative currency as a means of payment, account and valuation. * Any country vying for the US position would have to ask itself if it really wants to end up with a strong currency and the associated large current-account deficits that come with meeting the global demand for safe assets. This scenario does not seem attractive for Europe, Japan or China, where economic growth is export-oriented. * Under the current circumstances, it seems that the US will continue to maintain its great privilege for secure long-term bonds that private and public investors will want in their portfolios.
* If the US continues to monetize its large budget deficits and thus fuel its large external deficits, a rise in inflation could finally weaken the dollar's reputation and weaken its attractiveness as a reserve currency. Judging by the current economic policies in the USA, this risk is increasing.
* Another factor is the risk of the US losing geopolitical hegemony. One of the main reasons why so many countries use the dollar first is this hegemony. The currency of the country that has hegemony becomes the global reserve money, there is nothing changing in this regard. This was true for Spain in the 16th century, Holland in the 17th century, France in the 18th century, and Britain in the 19th century. If this century is the century of China, as many say, the dollar may fall while the yuan rises.
* The use of the dollar as a sanction weapon in trade, finance and technology could accelerate the transition. Even if a new president is elected in the US in November, such policies are likely to continue because the Cold War between the US and China is long-term and the US's strategic rivals and allies, such as China and Russia, are already going to diversify instead of dollar-denominated assets that could be sanctioned.
* At the same time, China has been introducing more flexibility to its own exchange rate, gradually relaxing some capital controls, and creating deeper debt markets. It has convinced more trade and investment partners to use the renminbi as a unit of account, means of payment, and store of value, including in foreign reserves.
"CHINA IS DEVELOPING AN ALTERNATIVE"
* China is developing an alternative to the western-based payment system Swift and is working on a digital yuan that can be used internationally. Their own tech giants are creating their own massive e-commerce and digital payment platforms such as Alipay and WeChat Pay. Other countries can adapt these tools to their currencies.
* In summary, the dollar's position is safe for now, but it faces serious challenges for years and decades to come. Yes, neither China's economic system (state capitalism with financial controls) nor its technocratic-authoritarian political regime have a serious appeal in the West. But for many emerging and less democratic countries, the Chinese model is already becoming very attractive.
* As China's economic, financial, technological and geopolitical power increases, the currency can make progress in more regions of the world.
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