A few days ago, the financial markets in the United States fell sharply, which had immediate and negative effect on financial markets around the world. Analysts and experts point out that the main reason was the Federal Reserve’s rate hike, which has resulted in a better investment opportunity for dollar deposits, higher borrowing costs for businesses and “slower growth” in corporate results. The US dollar is considered to be the most important weapon in America’s diverse financial arsenal. Thus, America is keen for its currency to remain the standard of exchange in global trade.
America “weakened” the Japanese currency during its rise in strength along with the Japanese economy in the 1980s. In 1999, the European Union launched its new currency, the euro, which was seen as a serious competitor to the US dollar as it began to play an important role in international business and trade. For example, if Russia bought a helicopter carrier from France or sold gas to Belgium, all of these operations were paid for in euros, and remained “outside” the US dollar system. This may explain why Donald Trump seems to have an interest in dismantling the European Union and thus maintaining the importance of the dollar in international transactions.
According to the latest statistics from the European Central Bank, more than two-thirds of the world’s debt is in US dollars and the same is true for global deposits. Gold and oil are priced in dollars as well as major commodities traded on international markets. When someone is kidnapped the ransom is usually demanded in dollars, and even rogue states, such as Iran and North Korea and terrorist organizations, such as Daesh, Hezbollah and Al-Qaeda deal in dollars. This means that maintaining the dollar as the world’s main currency is a strategic national security goal of the US.
However, there are growing “forces” that reject the continued dominance of the dollar, especially in influential countries.
Jean-Claude Juncker, president of the European Commission, recently said it was crazy for European countries to buy European planes in the US currency instead of paying in euros. The French finance minister said he wanted far-reaching and completely independent funding for the dollar. Moreover, is known that there are strenuous efforts in Russia and China to find a pricing for all trade operations between the two countries.
Trump’s exclusionary integration policy has weakened global dependence on the dollar, and the US administration had a wakeup call when it learned that China’s currency had become the second most important currency in Mexico, which along with Canada is party to the NAFTA agreement with the United States.
Even thought there are red lines for America with regard to the role of the dollar in global trade, there are clearly changes taking place in China, Europe and Russia. The dollar is America’s most important financial weapon, but how long its global dominance will continue is an open question that awaits an answer.
