China and India, the two biggest oil consumers in the world, have started purchasing Russian oil using foreign currencies. Saudi Arabia, the biggest oil exporter in the world, has indicated a willingness to trade oil for other currencies except the dollar. The Saudi declaration sparked a wave of conjecture that utilizing the dollar as an instrument of foreign policy may diminish its status as a worldwide reserve currency.
We are at odds. A loss of the dollar’s role as the reserve currency is not one of the hazards that the war in Ukraine poses for the United States. Because the dollar’s status as the world’s reserve currency is neither accidental nor the result of goodwill, all of these attempts have largely failed. It is based on dependable economic facts including the size of the American economy, the scope of international trade, the sophistication of the country’s financial markets, the convertibility of its currency, and the macroeconomic policies of Washington. The United States has few if any, competitors in any but the final of these fields.
The international function of the dollar has important political foundations as well. The United States has the most powerful military in the world, which has provided a public good of immeasurable value namely, the ability to travel and conduct business in practically any place in relative safety since the conclusion of the Cold War. Without it, globalization would not have happened.
Despite their repeated complaints, China and the European Union have greatly benefited from the global security provided by American military might and have contributed to its financing through their purchases of American debt. Nations depend on the dollar because it has consistently shown to be significantly more willing than the European Union, China, Russia, or Japan to serve as the lender of last resort during financial crises.
In the end, no other nation has the economic or military might of America, and the dollar is unlikely to be replaced by any other currency. Although the Eurozone has a sizable economy, neither a political nor a fiscal union exists within it. Europe performs militarily much below its economic potential. China, a developing power, wants the renminbi to replace the dollar as the world’s reserve currency. But China lacks robust, liquid private financial markets and forbids unrestricted capital transfers. Both its track record and reputation for upholding property rights are lacking. This, therefore, leaves the US dollar as the most stable and secure of all currencies.
The United States’ status as a significant global economic power and the nation’s political and economic stability accounts for the dollar’s worth. The dollar is a more commercially viable currency than currencies like the Swiss franc or the British pound, despite having a lower value.
by: Josphert.ke