An aggressive trade policy and significant sovereign debt on the part of the US could result in the start of a de-dollarization process, experts at the World Bank say. They point out that currently, about 70% of all world trade transactions are accounted for by the US currency, about 20% by the euro and the rest is divided among Asian currencies. But the situation could change in a matter of decades.
One of the most recent blows to the dollar's dominance was made by China with the introduction of its petro-yuan, which Beijing will use to buy oil and gas. That means that a huge chunk of the Chinese market will be closed to the US currency.
The foreign policy of the current US administration has also closed access to the dollar for another major player on the oil market, Iran, has which imposed a ban on using the US currency in transactions, sticking instead to the euro.
Some countries have even agreed to pay for Iran's oil with their national currencies, like India did, which will use rupees in transactions with Tehran. This will allow New Delhi to bypass the new sanctions that Washington will impose against Iran after withdrawing from the JCPOA. It has been reported that Turkey and Russia are considering similar options.
Another tendency is the withdrawal of gold reserves from the US. The Turkish Central Bank decided to bring its 220 tons worth of gold home from the US amid tensions with Washington over buying S-400 air defense systems from Russia. Germany and the Netherlands did this back in 2012, bringing 300 and 100 tons respectively back to their countries.
Keith Neumeyer, chairman of the company First Mining Gold, pointed out that due to the increasing interest rates of the Federal Reserve System (FRS), the US pressure on the euro and growing geopolitical risks may cause a further outflow of foreign gold reserves from the FRS.
He noted that many countries, like Turkey and Russia, are expanding their gold reserves in case the existing dollar system crashes under the weight of debt or other factors. In the event of the collapse of the dollar system, gold is expected to retain its value, thus enabling them to survive the crisis relatively untouched, Neumeyer added.
Currency Supported by Allies
Barry Eichengreen, an economics professor at the University of California, Berkeley and former adviser to the World Bank, believes that predictions about the dollar's downfall could come true in the next decade. In an interview with Quartz magazine in October 2017, he stated that many countries hold on to the dollar only because the US is their ally.
Should relations between Washington and other states worsen, they will most likely reduce the amount of dollars in their economies, the economist added. Recently, Donald Trump imposed harsh tariffs on steel and aluminum from countries considered to be US allies, sparking a trade war, with Canada already vowing to introduce retaliatory tariffs.
Investor Jim Rogers said at the St. Petersburg International Economic Forum (SPIEF) that, due to the US growing sovereign debt, the dollar is becoming less appealing to investors. He is confident that the currency will lose its status of main reserve currency by 2030.
This doesn't mean the dollar will be discarded entirely. According to the economists' estimates, a new system with three reserve currencies will emerge: the US dollar, the euro and one of the Asian ones, most likely the yuan.
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