Can Local Currencies Dethrone The US dollar?

The US dollar has gradually become a raving topic among financial analysts and economists. With calls for de-dollarization intensifying, arguments have arisen questioning its credibility. As the price of gold skyrockets to new highs, economists have posed the question of whether the USD is slowly losing its charm to inflation and other market elements. 

The USD’s declining purchasing power and the rise of multipolar currencies are another topic adding pressure to the currency. Amid all this, the perennial question remains: is the US dollar losing its reputation as a robust store of value? 

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Will USD Be Dethroned? 

The US dollar is currently standing at a precarious threshold. The currency is gradually undergoing an erosion of its purchasing power, which further challenges the USD’s global prestige. However, one of the most significant elements in the global currency overhaul is the rise of the multipolar currency system. The sector is currently posing new questions, wondering whether this new development will dethrone the USD’s global supremacy. 

With BRICS nations working on a new currency system for regions making use of the Yuan, the USD’s reputation is being directly challenged. However, in the long haul, it will take a bit more effort to destabilize the USD in its entirety. 

Per a report by Schwab Brokerage, the argument for US dollar destabilization is nothing but a farce. The platform later shared reasons, propagating why dethroning USD as a leading reserve currency may take a while.

“Our view is that this argument is overblown. A long-term trend toward the diversification of currencies in global financial transactions and trade may develop, but it’s a big leap from dollar dominance to de-dollarization.” 

The platform further noted how the argument countering the use of USD vs. Yuan is also far-fetched and exaggerated.

“The size of the recent non-dollar transactions that have raised alarm is very small. Trade in yuan accounted for less than 2% of global trade in 2022.” 

Per Schwab, with time, the US dollar may have new contemporaries challenging its prestige and authority. The platform further noted how it would be difficult to steal the USD’s status as a robust reserve currency. 

“There are few signs that major foreign holders are poised to suddenly shift away from U.S. dollars, and there are few other currencies that could take their place as a reserve currency. In our view, a gradual move to a global economy with a less dominant dollar is possible over time, but we don’t see the dollar losing its reserve currency status.” 

USD and the Death of the Economy: What’s Happening

It may take a while to dethrone USD in the long run, but the prospects of it happening have already started to catch pace. The rising inflation, with countries exploring alternatives to the USD, stands as a testament to the declining power of the US dollar. 

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With US debt metrics doubling at record speed, the region may soon undergo an economic shutdown, tanking the USD to new lows. 

With such heavy and rapid borrowing, the US is heading towards a fiscal meltdown where its leading financial sectors may collapse and die a slow death. 

“According to the US CBO itself, debt-to-GDP in the US is on track to hit 130% for the first time by 2033. In 2007, debt-to-GDP in the US was just 60%, and it has quickly doubled since then. Currently, debt-to-GDP is at ~124%, which is higher than the peak of World War II at 119%. Since 2020, debt-to-GDP has been up a whopping 20% after the government’s massive borrowing spree. Simply put, this is unsustainable.”