Could The End Of Global Dominance Of U$ Dollar Be In Sight?

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The US dollar’s share in global foreign exchange reserves has slowly declined for decades and now at least one economist believes the US dollar will cease to be the dominant currency in the global financial system sometime in the next 10 years.

At a meeting of the Valdai Discussion Club Jeffrey Sachs, a Columbia University economist said, “The epoch of the international financial system dominated by the dollar is drawing to an end, and this will happen in the next decade.”

According to the American economist, US dominance in the global economy is on a path of gradual decline. At the end of World War II, the United States accounted for 30 percent of world production, while this figure is now at “only 15 percent,” the economist recalled.

“This share will continually decline as developing countries grow faster than the US economy,” he noted.According to the American economist, “central bank digital currencies will become the basis of payments.

The finance pundit laid the blame for the unstoppable trend at Washington’s door, accusing the US government of having abused the privileges that using the dollar as the currency of choice for global trade and central bank reserve holdings. Now dedollarization appears to be a persisting trend that the United States will have to reckon with, whether they like it or not.

The US dollar’s slow decline accelerated in 2022, when Washington and its allies sought to “cripple” Russia with  amid the crisis in Ukraine.The restrictions, along with a decision to freeze a portion of Russia’s foreign reserves, prompted major non-Western countries, even including longtime traditional US allies and partners, to assess the potential dangers of staking everything on the greenback.

With the addition of six new regional powerhouse economies from Latin America, Africa, and the Middle East to the original five-nation BRICS bloc – Brazil, Russia, India, China and South Africa – the grouping of major non-Western world economies now accounts for some 37 percent of global GDP, compared with about 30 percent for the G7.

If there is substance to the warning, this could affect those countries whose currency is pegged to the dollar–in other words, their currency has a fixed rate of exchange to the US dollar. Several countries have their currency pegged to the dollar.

They have different reasons for pegging to the dollar. Most of the Caribbean islands—Aruba, Bahamas, Barbados, St Kitts and Nevis, and Bermuda, to name a few—peg their currencies to the U.S. dollar because their main source of income is derived from tourism paid in dollars.

Fixing to the U.S. dollar stabilizes their economies and makes them less volatile.St. Kitts and Nevis uses the Eastern Caribbean dollar which has been pegged to the US dollar at a rate of EC $2.70 to the dollar since 1976.

One key element in maintaining the value and stability of the currency is the  Eastern Caribbean Currency Union’s management of the region’s pool of foreign reserves which has allowed the peg to continue unchanged for the last 47 years.

Sources: Sputnik, Wikipedia.
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