The 4 forces that will challenge the dominance of the dollar, according to economic researchers. While the dollar still dominates central bank reserves and world trade, the currency accounted for 59% of all global reserves at the start of 2024, down from 71% of reserve in 1999, according to estimates from the International Monetary Fund.
That decline has sparked some fear among investors that the dollar could soon be ousted from its top-dog position in financial markets. While most experts say that likely isn’t happening anytime soon, the think tank said the dollar’s dominant status faces key challenges, pointing to four factors in particular.
1. US sanctions
The US began implementing sanctions on Russia and its allies That’s sparked a de-dollarization drive in Russia and other BRICS nations, which have suggested they’re looking to shift away from the dollar as a reaction to Western trade restrictions.
2. US debt
The US’s rising debt load could make currency holders more wary of the dollar, especially if there are concerns that the US may not be able to pay back its dues.
3. Improved payment technology
More advanced payment systems have made it easier to exchange nontraditional currencies. That could weigh on demand for the US dollar, which has traditionally been seen as the most attractive medium of exchange.
4. Central bank digital currencies
Digital currencies issued by central banks could also make it easier and cheaper to use nontraditional currencies. China is developing one such CBDC, and CIPS, China’s Cross-border Interbank payment system, has been “growing rapidly” over the past few years, the think-tank noted.
The Fed has created its own instant payment network, but hasn’t moved to create a CBDC, with Powell suggesting last year that a digital currency would require approval from lawmakers. That means the US risks falling behind other countries, where digital payment tech is rapidly developing.
Published on 02/09/2024
By Michael S.
