US Dollar is in danger of losing the status as the world's reserve currency.
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| [US Dollar in cage] |
For decades the US Dollar has essentially been the de facto global currency . From foreign bank reserves to the pricing of gold and oil,the US dollar reigns unparalleled. But that malignancy is now being threatened.
The US dollar supremacy can be traced back to the Bretton Wood Agreement. Created after the second world war many countries around the world began pigging their currencies to dollar which was pegged to gold. But even after the United States lift the gold standard in the 1970's its currency remain dominant.
Because during that time the OPEC (The Organisation of patrol Exporting Countries) also agreed to price their oil in U.S. dollars. Today, almost every international transaction is done using U.S. dollars.
America used its control of the dollar to increase surveillance of global money flows and curb financing toward bad guys. They did this by imposing sanctions on its rivals.
Under the system if a business or country tries with trade with sanctioned identity in dollars, the United States has the power to cut off its access to U.S. currency.
But now other countries and other currencies like crypto currencies are challenging dollar.
In March 2009, Russia and China raised their voice for new global currency. According to the former governor of People’s Bank of China it would be, " Is disconnected from individual nations and able to be stable in long run."
China’s concern center on the trillion dollars, it holds as reserves and the possibility that they would lose value with inflation. That's why they called on the IMF(International Monetary Fund) to develop a currency that would be an alternative of the dollar. It didn’t work out that way.
In 2016, China’s Yuan became another one of the world's reserve currencies. By 2020, central banks accross the world were holding $221 billion worth of Yuan . That's a very small portion compared to the $6.8 trillion held in U.S. Dollars .
Many analysts argue that China is working towards replacing the greenback with Petro Yuan. It is a sign that China wants its Yuan to play a much more bigger role in global market.
China is also leading the world in developing a national digital currency and it could be a game changer. China would be first economy in the world to fully digital currency based. Meanwhile the central bank is also making into ways to make international transactions possible in digital Yuan.
Russia with its huge oil reserve is also a big player. In 2020, during a regional security summit of SEO which comprises countries across Eurasia, Russia advocated the use of national currencies within the bloc. Back in 2019, Vladimir Putin signed a deal with Xi Xing Ping to use their own currencies in trade accounts. Their major goal is to reach the $200 billion annual trade still stands.
BRICS countries have established New Development Bank which has policies that would encourage its members to use local currencies. It is an effective way to lessen dependency on dollars.
Although the U. S. dollar remains the most dominant currency State's share to global economy is shrinking at an alarming rate. In 1960 it was 40 per cent but today it's just 25 per cent. Also the U.S. Federal Reserve continues to print money , the future value of dollar is at stake. The COVID-19 pandemic has fastened the process.
All these are forcing countries to find work around and rely less on United States money. But will the rest of the world follow their path?