Saudi Arabia has just said it is now “open” to the idea of trading currencies other than the US dollar – does this spell doom for the greenback? 3 reasons not to worry
With the 2023 World Economic Forum only a few days away, we are already getting a taste of the future the global elites envision for us all.
Saudi Arabia’s Finance Minister Mohammed Al-Jadaan stunned reporters in Davos when he expressed that the oil-rich nation was open to trading currencies other than the US dollar for the first time in 48 years.
“There are no problems discussing how we handle our trade deals, whether in US dollars, euros or Saudi riyals,” Al-Jadaan said.
His comments are the latest signal that powerful nations around the world are plotting to “de-dollarize” the global economy.
Here’s why replacing the dollar is gaining popularity and why dethroning the greenback is easier said than done.
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Rebellion against the dollar
The dollar’s dominance in global trade and capital flows dates back at least 80 years. For the past eight decades, the United States has been the world’s largest economy, the most influential political entity, and the most powerful military power.
However, economists in other countries are increasingly concerned that the country has “weaponized” this position of power in recent years, according to the CBC. The US imposes sanctions to punish conflict countries, threatens to devalue its own currency to win trade wars, and uses them to prop up its own economy at the expense of the rest of the world.
Not surprisingly, these moves have sparked a backlash from China, Russia and other prominent countries.
At the 14th BRICS summit last year, Russian President Vladimir Putin announced measures to create a new “international currency standard”. Meanwhile, China is urging oil producers and major exporters to accept payments in yuan.
The story goes on
This rebellion against the US dollar may erode some of its influence, but there is reason to believe that the dollar’s dominance will continue.
Replacing the dollar would be difficult
The dominance of the US dollar is underestimated. At the end of 2022, the greenback accounts for 59.79% of total foreign exchange reserves. In comparison, the euro accounts for 19.66%, while the Chinese renminbi accounts for just 2.76% of global reserves.
China could expand its market share by 20x and still lag far behind the US dollar.
Put simply, replacing the US dollar with foreign exchange reserves is easier said than done.
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Other countries have a lot of catching up to do
Reserve currency status correlates closely with the size of the issuing country’s economy. In other words, the largest economy usually has reserve currency status.
During the 19th century, the British pound was the world’s reserve currency because the colonies of the British Empire needed it for trade and commerce. The US dollar has dominated for the past century because the American economy is by far the largest.
China’s growth has slowed in recent years and some believe it will never overtake the US. Meanwhile, Russia was the 11th largest economy before invading Ukraine, despite being economically smaller than California or Texas alone.
And India is growing fast, but it would need to grow 628% to match today’s US GDP. That can take 25 years.
America’s economic lead is simply insurmountable.
The US will still be fine
The final reason Americans shouldn’t worry about the dollar losing ground is that the worst-case scenario isn’t that bad. Some analysts believe the future could be more multilateral.
The US could lose influence in some segments of the global economy, but not dominance everywhere. For example, the Chinese yuan could become more important for trade and cross-border payments, but the dollar could remain the reserve currency of choice for central banks in developed countries.
This is far from an economic nightmare for Americans.
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This article is informational only and should not be construed as advice. It is provided without any guarantee.