The world should end the hegemony of US dollar !
The COVID 19 crisis has led to a rapid rise in the US dollar as compared to the currencies of other countries especially in the developing world. The US Fed reserve is also on a currency printing spree with trillions of dollars of bailout for COVID 19. This gives US undue privilege without causing economy breaking inflation as the dollar is the world reserve currency currently. It also gives the US abnormally high purchasing power even when comparing with other countries in the developed world. Further, the US dollar became a FIAT currency back in 1971 when Nixon got rid of the gold standard which was introduced in 1944 Bretton Woods agreement. Currently, the dollar is not backed by anything but just “faith” in the US government and considering who we have in the white house today it is very hard to justify it.
It also leads to US companies hiring “cheaper” workforce in the developing world while they sell their products in the developed world. This leads to job losses in the US and trade deficits with most countries due to the strength of the US dollar. People in the developing world are hurt as well as their purchasing power is reduced due to the hegemony of the US dollar and they trade hours of their lives for companies where most of their work is consumed in the developed market. Also, it is difficult for developing countries to raise capital as the interest raised always ends up favoring the US dollar over currencies of other countries.
I think what the world needs is a global currency for trade where no single country has a control over the currency supply and cannot use the currency as a weapon. This will lead to a level playing field for the global work force and their purchasing power will be evenly balanced.
This will also shield us from a future where China can potentially surpass the US economically in the next decade and maybe the Chinese Renminbi may end up becoming a global currency in 30 years. I would hate to see a day when a Chinese central bank ends up printing the reserve currency for the world.
What can be potential alternatives to this system ? A global central bank with currency, SDR’s(Special Drawing Rights,IMF) or a global crypto currency ?
What are your thoughts ?
P.S: Please keep your patriotism aside and take a holistic look to discuss if the US dollar deserves this massive privilege.
comments
US has abnormal power on any existing world entities like IMF, etc. That is the reason China is trying to create alternate fund like IMF using BRIC countries.
The root of dollar as a reserve currency is Crude Oil. Any country need to buy Dollar first to buy Crude Oil. US provide military support to OPEC controlling countries thus they only use Dollar for Trade. So Dollar power comes from US military presence through out the world. So everything is very related.
US needs to make sure Crude Oil is priced appropriately for it to maintain Dollar Reserve Status. If not this thing won't work and US has no incentive to support OPEC countries and everything falls apart. So I bet Crude Oil will be back to its normal state very soon.
Also, most of the system we are seeing today was done as part of Bretton Wood Agreement.
https://www.thebalance.com/bretton-woods-system-and-1944-agreement-3306133
Bitcoin is even worse as any person with 50% of the mining capacity controls the respective Bitcoin. If it becomes mainstream common people will not able to obtain compute. Also, there is lot of inefficiency in it. Only thing it is currently used is to hide traces of illegal activity and largely speculative betting.
Only thing I can think of which helps is a little bit of competition to reserve currency status. Fortunately, it is already happening due to reduced demand for Crude Oil and importance of alternative "Rare earth metals". Crude Oil is currently the global engine which is very evident from current crisis where economy stopped crude crashed. This crash shifts the gear towards Rare earth metals. Unfortunately China controls most of the rare earth metals.