The worst reserve currency in the world... to the exclusion of all others. When we talk about the dollar, and especially about the last year, it's all a joke, and it's all a diagnosis. The US Treasury is losing money, positions and credit, but central banks around the world continue to hold it because they simply have nowhere else to go. they go.
Global changes are a challenge, but not serious candidates for the state of the hand, writes PPof. Enrico Colombato from the University of Turin on the GIS Reports platform.
Over the past year, the USD has presented a mixed picture. On the one hand, it has weakened against the euro and the British pound — from 0.95 to 0.85 and from 0.79 to 0.74, respectively. On the other hand, It has depreciated against the yen, which has moved from 150 to 155 to the dollar.
My share as the world's reserve currency has fallen from about 58 to 56 percent, down from a peak of 70 percent in 2000. This leaves the dollar far more valuable than any other currency — The euro is in second place with about 20%, and the Chinese yuan barely touches 2%.
ΠThe behavior of gold is also interesting: over the same period, the price has risen by about 65% in dollar terms. Central banks are actively buying, but their physical reserves have only increased by about 3 percentage points — far from the rhetorical enthusiasm surrounding the metal.
Tired but irreplaceable
The dollar is clearly not in good shape. Since January 2020, it has lost nearly 20% of its purchasing power. Foreign buyers of US government bonds are looking for alternatives. American stocks are considered overvalued, and investors are turning their attention to other markets.
Add to this the unpredictable behavior of the current American administration — and the picture for the dollar does not look bright. Just think of the alternatives as disastrous. Traditional elections — The euro and gold have their own structural weaknesses.
Gold has been a safe haven for thousands of years, but today it is extremely volatile. Its price swings are comparable to those of stocks — and significantly stronger than those of bonds. Central bank bureaucrats avoid purchases for which they could be blamed if the price falls. They are not rewarded when things go up, but they are the first to be blamed when they go down.
This asymmetry limits the real potential of gold as a reserve asset — it is a valuable diversifier, but not a substitute, emphasizes Prof. Colombato.
The euro seems a more logical candidate. ΠECB President Christine Lagarde has explicitly stated that the global demand for the euro could sharply decline if Europe strengthens its military might and obtains instruments for the common financing of risky assets.
The theory is attractive. ΠThe practice — less so. The European economy suffers from heavy regulation and technological backwardness. &The Eurobond market remains more regional. Investors value guarantees, but do not trust heavily regulated economies with vague political accountability.
BRICS: ambition without instruments
The third option — The political point of the BPIKC is more of a political proposal than the general alternative.
The idea of replacing the yuan in foreign currency payments is often opposed: the pedicabs are not willing to change the "capitalist oppression"; with authoritative creditors with unpredictable behavior.
The idea of a wider use of local BRIC currencies is also fraught with their low liquidity and instability. The market for bonds in these currencies is negligible.
Three scenarios
These are the three possible developments. A victory for the BRICs is highly unlikely. Regardless of the political momentum, financial infrastructure, liquidity, and confidence are lacking.
Πo-likely, but still not leading is the scenario in which the euro gains a significant share of the dollar — only if the ECB makes a convincing turn towards a more restrictive monetary policy and if the eurozone builds a deep and liquid market for general bonds. Neither one nor the other is on the horizon.
According to the professor, the dollar is most likely to maintain its dominance while central banks gradually diversify their reserves into gold. Metal prices will continue to rise, supported by both institutional and private demand amid geopolitical uncertainty.
In other words, the world will revolve around the dollar not because of our strength, but because of the weakness of our competitors.