Over the past few weeks there has been a flurry of headlines about the imminent demise of the US dollar as the world’s reserve currency. This is precipitated by the coordinated attacks of some countries to dethrone the dollar.
In a meeting in Indonesia on March 28, ASEAN finance ministers and central bank governors discussed efforts to reduce dependence on the US dollar, euro, yen, and British pound from financial transactions; and move to settlements in local currencies through the Local Currency Transaction scheme. This is an extension of the previous Local Currency Settlement scheme being implemented among ASEAN members.
Even as the White House has been deeply involved in the ongoing debt ceiling negotiations, there has yet to be traction on an agreed budget to incur a ceiling raise. Simultaneously, the international trade market is seeking ways to curb the use of the US dollar, which is further diminishing its value.
Britain has been increasingly turned toward an economy based on subsidies, price controls, and other regulations. Although the US economy has also become more regulated, it remained relatively free. In 1944, the Bretton Woods agreement finally sealed the deal: the dollar had dethroned the British pound. Under Bretton Woods, the dollar would remain tied to gold for international transactions among sovereign states, and other currencies were only pegged to gold via the dollar.
The US government bond market is huge and allows a great deal of ease in buying and selling Treasury bills and bonds, which remain extremely liquid and are considered by many to be near dollar substitutes. Problems of openness and convertibility remain obstacles for China, despite the size and scope factors that are working in China’s favor. China still employs capital controls, which makes its economy relatively less open than Western ones.
Even China, in an environment of intensifying geopolitical competition with the US and having just witnessed Washington’s weaponization of the dollar against Russia, has had no choice but to continue accumulating dollar-denominated assets.According to Peter C.
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