Saudi Arabia just said it is now “open” to the idea of trading currencies in addition to the US dollar – does that spell doom for the dollar? 3 reasons not to worry
The 2023 World Economic Forum is just days away, and we’re already getting a glimpse of the future the global elite have in store for us all.
Saudi Arabia’s finance minister, Mohammed Al-Jadaan, stunned reporters at Davos when he said the oil-rich country was open to trading currencies alongside the US dollar for the first time in 48 years.
“There’s no problem discussing how we settle our trade deals, whether it’s with the US dollar, the euro or the Saudi riyal,” Al-Jadaan said.
His comments are the latest signal that powerful countries around the world are plotting to de-dollarize the global economy.
Here’s why replacing the dollar is gaining popularity and why dethroning the dollar is easier said than done.
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Rebellion against the dollar
The dominance of the dollar in global trade and capital flows dates back at least 80 years. Read also : Release of the President’s National Security Strategy – United States Department of State. For the past eight decades, the United States has been the world’s largest economy, most influential political entity, and most powerful military power.
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 US imposes sanctions to punish countries in conflict, threatens to devalue its 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 moves have inspired a backlash from China, Russia and other prominent countries.
At the 14th BRICS summit last year, Russian President Vladimir Putin announced measures to create a new “international currency standard”. At the same time, China has urged oil producers and major exporters to accept the yuan for payments.
This revolt against the US dollar may reduce some of its influence, but there are reasons to believe that the dollar’s dominance will remain.
Replacing the dollar would be hard
The dominance of the US dollar is understated. As of the end of 2022, the financial market accounts for 59.79% of foreign exchange reserves. Read also : Oakwood offers candy stores near UD extended hours until late at night. In comparison, the euro accounts for 19.66%, while the Chinese renminbi only accounts for 2.76% of global reserves.
China can increase its market share twentyfold and still lag significantly behind the US dollar.
Simply put, replacing the US dollar in foreign reserves is easier said than done.
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Other countries have a lot of catching up
The status of a reserve currency 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 British pound was the world’s reserve currency because the colonies of the British Empire needed it for trade and commerce. Over the past century, the US dollar has dominated because the American economy is by far the largest.
China’s growth has slowed in recent years and some believe it will never overtake the US. Meanwhile, Russia was the 11th largest country before invading Ukraine, despite being smaller economically than California or Texas alone.
And India is growing fast, but it would have to grow 628% to match the GDP of the US today. It can last for 25 years.
America’s economic lead is simply unmatched.
The U.S. will still be OK
The last reason Americans shouldn’t worry about the dollar losing its influence is that the worst-case scenario isn’t so bad. Some analysts believe that the future could be more multilateral.
The US may lose influence in some segments of the global economy, but not dominate everywhere. For example, the Chinese yuan may become more important for trade and cross-border payments, but the dollar may remain the preferred reserve currency of developed countries’ central banks.
This 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 offered without warranty of any kind.