The dollar is posting its worst performance since 2017, giving way to a successor as the world’s reserve currency
For years, analysts have predicted the collapse of the dollar system, which has provided Washington with incredible clout and multiple tools to exert pressure on other countries. The pandemic and the economic crisis it provoked have turned the predictions into a sad reality for the US.
The dollar’s half-century domination of world markets is becoming a thing of the past, Bloomberg writes. At the same time, the Chinese yuan is already tending to take the leading position.
As we know, the United States failed to respond effectively to the coronavirus infection. For a long time, the threat was ignored by the government which led to disastrous consequences. 22 million cases of infection and almost 370 000 deaths make the USA the leader in the spread of COVID-19.
China, although a source of infection, has coped with the problem and is already showing economic growth. Since the US cannot boast of the same results, many investors are eyeing the yuan as a reserve currency.
“Of course, the decline of the dollar as the world’s reserve currency has been idly speculated on for years”, – says economist Susan Barton. – “Before the yuan, all the hype was about the euro as the successor to the dollar. But nothing has ever been able to break the twin pillars of the dollar’s dominance: the role of the US as an engine of global growth and a safe haven of first choice for investors in times of crisis.”
Both of these pillars have collapsed under the onslaught of the coronavirus, and the yuan has benefited from the demand for outperforming economic indicators and assets protected from the effects of the pandemic. While US output will grow by 3.9% in 2021, Chinese output will grow by more than 8%.
While more than 60% of the world’s foreign exchange reserves are denominated in dollars – as they have been for more than two decades – dollar reserves fell to their lowest level since 1996 at the end of the third quarter. The euro, pound and yen have all benefited from this fall, but only the yuan has boosted allocations to 2.1% in the last 3 quarters.
“The centre of the global economy is shifting from the North Atlantic, where it has been for 500 years, to the Pacific”, – said Mark Chandler, chief market strategist at Bannockburn Global Forex. – “Over time, currency markets will be affected.”
The Centre for Economic and Business Research predicts China could dethrone the US as the leading driver of growth as early as 2028, five years earlier than expected just a year ago. This has caused some analysts to rethink their approach to the currency. HSBC Holdings Plc believes the yuan is making an increasing impact on the stock exchange.
The yuan is already the fifth most popular currency for global payments. It accounts for about 2% of transactions, according to the Society for Worldwide Interbank Financial Telecommunications. By comparison, the Chinese currency was ranked 35th in 2010 when such observations began.Biden starts ruling like ‘any post-Soviet regime’ – Bloomberg on Democrats’ reaction to Capitol assault