The 2023 World Economic Forum has only been around for a few days and we already have a glimpse of the future that the global elites envision for all of us.
Saudi Finance Minister Mohammed Al-Jadaan stunned reporters in Davos when he said the oil-rich nation was open to trading currencies alongside the US dollar for the first time in 48 years.
“There is no problem discussing how we settle our trade agreements, whether in US dollars, euros or Saudi riyals,” Al-Jadaan said.
His comments are the latest signal that powerful nations around the world are plotting a “de-dollarization” of the global economy.
Here’s why replacing the dollar is gaining popularity and why dethroning the greenback is easier said than done.
Rebellion against the dollar
The dollar’s dominance in global trade and capital flows dates back at least 80 years. For the past eight decades, the United States has been the world’s largest economy, most influential political entity, and most powerful military force.
However, economists in other countries are increasingly concerned that the country has “weaponized” this position of power in recent years, according to the CBC. The United States applies sanctions to punish countries in conflict, threatens to devalue its own currency to win trade wars, and uses it to prop up its own economy at the expense of the rest of the world.
Unsurprisingly, these measures drew a backlash from China, Russia and other major countries.
At the 14th BRICS summit last year, Russian President Vladimir Putin announced steps to create a new “international monetary norm”. Meanwhile, China has urged oil producers and major exporters to accept the yuan for payments.
This rebellion against the US dollar could erode some of its influence, but there are reasons to believe that the greenback’s dominance will continue.
Replacing the dollar would be difficult
The dominance of the US dollar is underestimated. At the end of 2022, the greenback represented 59.79% of total foreign exchange reserves. By comparison, the euro accounts for 19.66%, while the Chinese renminbi accounts for just 2.76% of global reserves.
China could increase its market share by twenty times and still lagging the US dollar by a wide margin.
Simply put, replacing the US dollar in foreign exchange reserves is easier said than done.
Other countries are way behind
Reserve currency status is closely related to the size of the economy of the issuing country. In other words, the largest economy usually has reserve currency status.
In the 19th century, the pound sterling was the world’s reserve currency because the colonies of the British Empire needed it for their trade and commerce. Over the past century, the US dollar has dominated because the US economy is by far the largest.
China’s growth has slowed in recent years and some believe it will never overtake the United States. Meanwhile, Russia was the 11th largest economy before invading Ukraine, despite being economically smaller than California or Texas alone.
And India is growing fast, but it would need 628% growth to match the GDP of the United States today. It could take 25 years.
America’s economic lead is simply insurmountable.
USA will always be OK
The final reason Americans shouldn’t worry about the dollar losing influence is that the worst-case scenario isn’t so bad. Some analysts think the future could be more multilateral.
The United States may lose its influence in certain segments of the world economy, but not its dominance everywhere. For example, the Chinese yuan could become more important for cross-border trade and payments, but the dollar could remain the preferred reserve currency of central banks in developed countries.
It is far from an economic nightmare for Americans.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.