That dollar today it remains the reference currency in the global financial system. However, experts from different entities, such as international banking Goldman Sachsinvestment fund Black Rockand educational institutions such as Stanford Universitycoincided at one point during the last days: the dollar is in danger of losing its hegemony in international finance.
In this way, experts believe, the US currency faces a complex scenario that will bring it closer to a situation seen a little earlier in its history. “The dollar is in an increasingly fragile position, with the prospect that the two commodity-backed currencies, the ruble and yuan yuanchallenge their reserve status,” said David Bradydeputy director and senior member Hoover Institution from Stanford University.
The perfect storm
In a recent article, “The perfect storm for the dollar”, analysts point to two main factors currently in the world economy: the war in ukraine and major inflation, followed by monetary policy tightening of the major powers. Both situations are also presented as a condition of dollar supremacy.
On the one hand, sanctions against Russia could be a change in the dynamics of fuel marketing. In that sense, Brady noted that “in response to sanctions, putin stated last Wednesday that ‘enemy’ countries namely the US and all EU countries must pay for their natural gas in rubles. Potential game changer.”
At the same time, he said that to this it should be added that Saudi Arabia is considering selling oil to China in yuan instead of dollars: “That creates a lot of concern about the remaining useful life of Petrodollar“, he explained.
Besides that, Brady assesses the US currency has experienced a decline in purchasing power as a result of the escalation in inflation experienced since the start of the pandemic, albeit at a slower rate than euro and yenthe two main reference currencies in Dollar Index (DXY).
Comparison with pound sterling
From Goldman Sachs make a similar diagnosis. According to the bank, dollar dominance is risky because the currency “faces some of the same challenges it faces. pound sterlingcurrency great Britain, in the early twentieth century, shortly before it fell and was replaced by the dollar”.
According to his latest report, among the challenges facing the US bill “is the fact that the United States has a relatively small share of world trade compared to the dollar’s dominance in global payments”, as well as a worsening “net foreign asset position” with increasing external debt” and “deal with geopolitical issues, such as Russian War in Ukraine“.
In this sense, from the bank they warned that the “huge debt of EE.UUcomes from being a large importer of goods, can be a particular problem”, because “if the debt of the issuer of the reserve currency grows in relation to STARTeventually foreigners may be reluctant to have more.”
And they recall the UK case: “International investors are becoming increasingly reluctant to hold onto pound sterling after United Kingdom piling up big debts World War II“.
The New World Order and the end of globalization
“Despite the poor start to 2022, one thing we feel relatively confident about is that we are exiting the investment regime that has been in power ever since. Global financial crisis year 2008″, shot Tony DeSpiritoHead of Investment Fundamental Stock Division of Black Rock in a presentation on the outlook for investment funds for the second quarter of this year, according to MarketWatch.
DeSpirito points out that we will witness not only a “The new world order” which “will undoubtedly involve” higher inflation and interest rates than we had between 2008 and 2020″but to a more complicated environment for investors, mainly because Russian War in Ukraine threatens to keep energy and raw material costs high.
Just before this statement, Black Rock issued in a note to shareholders that Russia’s invasion of Ukraine will end globalization. “I remain a long-term believer in the benefits of globalization and the power of global capital markets. But the Russian invasion of Ukraine has ended the globalization we have experienced in the last 3 decades. CEO from company, Larry Fink.
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