Source: Fortune.com
Summary
Iran’s threat to start offering safe passage to oil tankers that pay in Chinese yuan instead of US dollars has sparked concerns about the dollar’s dominance. However, experts argue that the dollar’s success rests on robust foundations, including the depth and liquidity of US financial markets and the country’s open capital account. The dollar’s status is also reinforced by its widespread use in international transactions, foreign currency reserves, and export invoices. Despite the rise of alternative currencies, the dollar is expected to maintain its position as the world’s reserve currency.
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The strategy enters a familiar phase.
As the dollar’s dominance is questioned, Deutsche Bank analysts warn of “significant downstream effects” to the dollar’s role as the world’s reserve currency. Meanwhile, the greenback’s status is reinforced by its use in over 90% of foreign exchange swaps, totaling over $100 trillion. Despite the petrodollar’s decline, the dollar market has surged, with the offshore dollar credit market growing from $2.5 trillion in 2000 to $14.2 trillion last year.
It’s just another episode in which alarmism over the dollar’s primacy has proven misplaced.
Author: Evan Null
