Fears that the US dollar will lose its throne as a global currency are exaggerated

Concerns about the collapse of the US dollar from its position as a dominant global currency are frequently emerging these days. These fears sometimes stem from exaggerated perceptions about China’s economic and financial strength, and other times reflect concern about the weakness of the US economy and its chronic trade deficit. Finally, fears about the dollar have emerged from a legitimate concern about the increasing burden of US public debt.

Of course, these problems exist, but the role of the dollar as a global means of trading and storing wealth, which is what bankers and economists call the “global reserve,” is a more complex issue, and even if the dollar were to lose its global status, it would do so more slowly than these fears suggest, and if that happens, it will take a long time, especially since the world does not yet have an alternative to it.

When the dollar ascended to the throne of world currencies after World War II, the United States economy was larger than the economy of any other country on the planet, and the world’s wealth was, for the most part, located within the borders of this country. This is no longer the case now, and has not been the case for decades. Japan and Europe have long since developed huge economies with advanced financial systems, and China has risen from poverty with amazing speed.

Although the United States has become richer and stronger, its relative position is no longer what it was, and despite all this change, there is no currency in the world, whether the Japanese yen, the European euro, or the Chinese yuan, that can provide what is required from the global reserve currency, and the dollar remains alone in this regard, and this situation will not change in global trade or global finance, and global trade and global finance will not abandon it until there is a practical alternative that plays its role.

At the simplest level, the dollar has the advantage of custom and tradition. It has dominated for many decades, to the point that global trade and finance have built established institutions and practices around it. The euro may dominate trade within the European Union, and Beijing may push towards using the yuan in many of its trade relationships, especially within the framework of the Belt and Road Initiative.

However, regardless of these details, the world still relies heavily on the dollar.

According to statistics from The Atlantic Council, about half of global trade is invoiced in dollars, whether the United States is a party to it or not.

If this is compared to the three largest major currencies in the world, we see that 30% of export contracts are invoiced in euros, most of which is trade within the European Union. For the British pound, the percentage is 4%, as well as for the Japanese yen or the Chinese yuan. Since China represents approximately 13% of global trade, these numbers indicate that a large portion of its exports are invoiced in dollars.

The dominance of the dollar appears to be entrenched in currency trading patterns that form the basis of international trade and finance. According to Atlantic Council statistics, the dollar is used in about 90% of currency transactions, wherever they take place. Because trading in the dollar is easier and faster than any other currency, it plays a role even when neither party to the deal is American, or has an interest in American products.

For example, any Malaysian buyer wants to buy Indonesian goods, the Malaysian ringgit will be exchanged for the dollar, and then the dollar will be exchanged for the Indonesian rupiah he needs for the purchase. Given that trading between the ringgit and the rupiah is irregular, and sometimes unreliable, the presence of the dollar as an intermediary makes the process easier, whether the exchange takes place in London, New York, Singapore, or anywhere else.

To compete with the dollar’s dominant position, other currencies will need to strengthen their role in such exchanges, and they still have a long way to go. The Atlantic Council points out that the euro represents about 30% of global currency transactions, but many of these transactions are against the dollar. As for the Japanese yen, which represents only 17% of global currency transactions, it is barely mentioned, and the Chinese yuan is less important, as it represents only 9% of global currency transactions. About: “National Interest”

• If the dollar is to lose its position, it will happen slowly, and if that happens, it will take a long time, especially since the world does not yet have an alternative to it.