For several years, in many scientific circles working on economy and trade, there has been a talk of decreasing dollar’s credit and replacing it with other currencies. Many pundits believe that dollar has ceased to be reliable.
The risks of savings in dollar have been rising over the past years and have been more than doubled under the 45th guest of the White House, Donald Trump, and his economic and trade policies.
As you know, dollar ruled the global trade arena for decades. In view of this, before the emergence of the euro and empowerment of yuan and yen in the world markets, approximately all dealings and exchanges were made in dollar across the world. Strengthening of dollar in the global economy dates back to 1944, one year before the end of World War II. In 1944, more than 40 countries gathered in Bretton Woods, New Hampshire, the US, to decide on how to determine the world's post-war economic structure. One of the results of the meeting, known as the Bretton Woods Conference, was the adoption of dollar with the backing of gold as an international currency. That is, the United States government guaranteed a constant conversion rate of one ounce of gold for $35. The agreement was canceled by the US unilaterally in 1971 for a number of reasons, including the problems caused by the Vietnam War. Ever since, dollar has lost its backing as a global currency.
But why has dollar continued to maintain its value over the next decades, despite the unilateral breach of the agreement by the US? One of the factors was the pricing of oil exchanges with the dollar. Since 1970s, almost all oil exchanges have been done in US dollars even when the US lacked a significant role in exchanges among countries. Furthermore, the US dollar became a reliable source of investment for many capitalists in the world.
In macroeconomics money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account. Medium of exchange. Money's most important function is as a medium of exchange to facilitate transactions. Since 1944, when the US dollar was imposed over the world as a global currency, its role as the medium of exchange has been more conspicuous. In other words, earlier countries had difficulty in agreeing on the value of their goods for economic exchanges. The existence of dollar as a medium of exchange and a global currency solved this problem.
With the increase of dollar reserves of the countries, the function of dollar as a store of value was more spectacular. Thus, countries considered their dollar savings as an investment. In view of the current realities of the world economy, the question that arises is: Has dollar kept its role as a store for investment?
In response, it should be said that evidence suggests that investment in dollar has declined; some countries turn their dollar reserves into other forms of investment, which means a huge devaluation of dollar. In the first half of 2017, the Belgian central bank raised foreign investment of 200 million euros in Chinese yuan assets and 100 million euros in South Korean won. During this period, the European Central Bank allocated 500 million euros (equivalent to $ 558 million) of its currency reserves to invest in Yuan assets. This indicates the significant devaluation of dollar.
Hong Kong Economist Nathan Chu Hung in an analysis on the conversion of dollar to other currencies by countries of the Eurozone said: "Adding to yuan's assets by the European Central Bank will increase the interests and efforts of other countries to internationalize and make more use of the yuan. This will definitely affect internationalization and the global position of the yuan in the long run."
The global price of ounces of gold, has increased from $480 to $1350 since 1945. Thus, dollar lost 65% of its value against gold. One of the causes of dollar devaluation is the skyrocketing amount of US debt. According to the United States Department of Treasury, the US debt until the end of Barack Obama’s tenure was nearly $20 trillion. Many experts believe that an increase of $500 billion in these debts could be a threat to other economies in the world. It should be noted that, according to the International Monetary Fund, the US foreign debt was equal to 108% of its gross domestic product by the end of 2015.
In the past decades, in addition to economic power, dollar has been an effective tool in the US policy because of the high demand for it. Today it is used by the US as a ploy to wield the US hegemony against independent and defiant nations. MICHÈLE BRAND and RÉMY HERRERA, writers of “Dollar Imperialism” say: "What determines the value of dollar is not the amount of working dollars but demand for it. This demand is huge because of dollar's position as the international currency. This dollar position is maintained only by US military dominance, even though the US economy and its monetary policies are weaker. "
The authors of the article "Dollar Imperialism" believe that "not only dollar makes the US Empire possible, but the protection of dollar's position is one of the main reasons for the wars of the American empire. The financial and military power of the US depends on the fact that the dollar is the reserve currency as well as the currency for global trade. This creates a global demand for dollar. This global demand will allow the US to print as much dollar as it likes."
US domination and misuse of dollar-based global trade to enforce sanctions and pressure on other countries have led many governments to mull the policy of eliminating dollar from their oil and trade exchanges and try to withdraw from dollar by using bilateral and multilateral monetary treaties. The group of five new emerging economies, the BRICS (Brazil, Russia, India, China and South Africa), has been actively accelerating the process of increasing bilateral trade exchanges in their own national currencies since July 2014. Based on the agreements reached and the proposed solutions, the volume of trade exchanges among these countries is estimated to amount nearly 17% of all global trade exchanges each year. If this is achieved, dollar will be eliminated from 17% of the total global trade. This translates into independence of the countries from dollar in economic activities.
Removing dollar from international exchanges will not only nullify American hegemony on these exchanges, but will also eliminate the costs of converting currencies into dollars and vice versa. Meanwhile, the use of national currencies of countries will increase their value and credibility in international markets as well as bilateral and multilateral exchanges of countries in the form of exchange treaties.
The possibility of dollar printing, playing with interest rates, and adopting monetary expansion policies by the US regime allows the country to play a role in the dollar-dependent economies of the world. To get rid of this plight, some countries are trying to get rid of dollar in their trade exchanges. Investing in the local currency and concluding contracts and financial reports based on non-dollar currencies can reduce dollar's clutch over global trade. Considering the need for evaluation criterion in global economic exchanges, it seems that the existence of a new global reserve is necessary. A strong monetary currency, which is not the national currency of any country, can replace dollar in the global trade. This money needs to be managed by international institutions which are reliable and neutral in comparison with current institutions.
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