Countries like Brazil and China are challenging the US dollar’s dominant position in international trade and banking. This is due to the growing cold war between the West and the Sino-Russian bloc, US debt and inflation, and the controversial interest rate policy. What does this mean for other currencies and cryptocurrencies? Will Bitcoin become an international currency?
Brazil and China Abandon the Dollar
The events are speeding up. China and Brazil have decided to ditch the dollar and conduct massive trade in their respective currencies (yuan and Brazilian real), or – as some sources say – they only “added local currency settlement channel“. India and Malaysia can now settle their trade using the Indian rupee, while China just made its first LNG transaction from France using the Yuan.
A top Russian official claimed that Brazil, Russia, India, China, and South Africa (the so-called BRICS) countries were working on creating their currencies. Such an idea is familiar, and the possibility of moving away from the current global monetary system is growing. Are we getting to the end of the dollar’s dominance?
Is the USA Approaching “The 7th Degree Of Empire”?
British historian Niall Ferguson’s book Empire: The Rise and Demise of the British World Order and the Lessons for Global Power contains a notion he calls the “seventh degree of empire.” Every empire, according to Ferguson, goes through seven stages of development. The final and top level of the empire is the seventh degree. One country may be able to control the world’s resources and international politics.
Ferguson says no empire has ever reached the seventh degree, but the United States is the closest to getting there. He says the US is an empire because of its economic and military power and cultural influence.
But, given the significant obstacles facing its growth, the US could still need to go to the ultimate dominance phase. The empire might fall apart and be prevented from gaining total hegemony due to political reform, rising debt, and competition from new countries like China.
The International Role of the U.S. Dollar
The US dollar has long been regarded as a particular currency because of its role in commerce and banking. In the 20th century, it replaced gold as the global banking reserve. It is used for trading commodities and comparing prices.
The USD’s unique position in international trade and banking has several implications:
- Firstly, it has enabled the US to influence the global economy.
- Secondly, Washington has used its dominant position to influence other countries’ economic policies and promote its interests.
Even if the dollar’s role is reduced, the US will keep its importance for the global economy. Nevertheless, as other currencies continue to gain popularity, the balance of power in global finance and trade may change over the next few years.
Despite its importance, some countries desire to refrain from using the USD. China, Russia, and other states that aren’t America’s natural allies are often worried about the dominance of Western countries.
What Does the USD Have to Do with America’s Military Power?
Due to the unique role of the USD, the United States can finance its military with debt. Borrowing is much cheaper for the Fed and Washington than for any other central bank or major city worldwide. America successfully used this trend after World War II and during the Cold War to build influence and achieve unparalleled military dominance. Not everyone likes it, and the weakening influence of the US currency and the potential decline of US dominance can be seen with the naked eye.
The Chinese Yuan Gains In Importance
The expansion of the Chinese economy over the previous two decades has been notable. The Chinese yuan has recently become known as the reserve currency in international trade. Other currencies, though less known, also play an important role in global trade, including the euro, British pound, and Swiss franc. They, too, are crucial to the global financial system. So it is not true that we will soon see a total reversal of power in geopolitics.
The Fed To The Rescue?
When people worried about the stability of the US banking system, the US Federal Reserve moved quickly to fix things. The move follows similar actions during the global financial crisis and the COVID-19 pandemic. In the wake of recent bank failures and takeovers, the Fed’s emergency programs are meant to give investors, depositors, and financial institutions peace of mind.
Even though the main goal of these steps is to stabilize the US banking system right now, they could have big long-term effects.
- The Fed’s policies will likely strengthen the US dollar in world trade.
- Since World War II, the US dollar has been the main reserve currency and medium of exchange around the globe.
- These recent developments are predicted to strengthen the dollar’s position further.
- In addition to the bank financing program, the Fed has worked with other central banks worldwide to increase liquidity.
- This should make the US dollar more important in the international financial system.
Recently, people have talked about and looked into the role of the US dollar in international trade and as a reserve currency. Some countries try to promote their currencies as alternatives to the US dollar. But the Fed’s recent actions show that the US is still committed to keeping the US dollar as the most important currency in the world’s financial system.
Brazil and China Abandon the dollar. A Take-Home Message
The immediate goal of these efforts is to get the US banking system back on track, but there may also be important long-term effects. RThe use of the US dollar as a reserve currency and in global trade has recently been scrutinized. Some countries have been trying to promote their currencies as alternatives. But the Fed’s most recent actions show that the US is still determined to keep the US dollar as the most important currency in the world.
If this happens, the role of gold and Bitcoin may increase. There are possible scenarios in which the world replaces the US dollar with a decentralized currency, such as Bitcoin. Possible creation of a multipolar system where competing states were competing. What does this mean for margin traders? There is a lot of room for speculation. Keep an eye on the news about the yuan, bitcoin, gold, and dollar.