Sunday 9 April 2023

US Dollar is the world concern

 Introduction

Trading currencies, petrocurrencies, and reserves are three different types of currencies used in the global economy and international trade. The US dollar dominates as the primary trading currency globally.

  • Trading currencies, such as the US dollar, Euro, Japanese Yen, and British Pound, are commonly used for international trade transactions. 
  • Petrocurrencies, the US dollar, historically dominate the pricing and trading of oil. 
  • Reserve currencies, the US dollar, Euro, and Japanese Yen, are held in significant quantities by governments and institutions for value storage and international transactions.

Historical dominance

The US dollar has traditionally been the dominant petrocurrency and reserve currency. Countries trade in US dollars due to their historical dominance as a reserve currency.


Stability, and reliability. 

The US$ is also widely accepted and used for pricing and trading commodities, including oil, which is a crucial factor in international trade. The US economy's large and influential status further reinforces the US dollar's popularity in international trade.


Future status decline

There are concerns about the status decline of the petrodollar system. The increasing use of alternative currencies, such as the Chinese Yuan, Ruble, and the Euro, for international transactions. Concerns about US economic policies and political instability, as well as the shift towards renewable energy sources and away from fossil fuels, all impact the petrodollar system. Additionally, the US government's debt and deficit spending reduce investor confidence in the US economy, affecting the demand for US dollars as a reserve currency.



The BRICS Countries

Brazil, Russia, India, China, South Africa, and other countries such as Saudi Arabia, Iran, etc. are increasingly promoting the use of local currencies for international trading. This trend is a departure from the traditional reliance on the US dollar for international trade transactions.



Shift factors. 

  • First, these countries diversify their foreign exchange reserves and reduce their exposure to the potential risks associated with relying heavily on the US dollar. By using their own currencies for international trade, they aim to reduce exchange rate risks and enhance their financial stability.


  • Second, there is a desire among these countries to assert their economic sovereignty and reduce their reliance on the US dollar-dominated global financial system. They see the use of their own currencies in international trade as a way to promote their national interests and reduce the influence of the US dollar in global economic affairs.


  • Third, there are geopolitical considerations at play. Some of these countries may have strained political relations with the United States, and promoting the use of their own currencies for international trade is seen as a way to assert their independence and reduce their vulnerability to potential US sanctions or other forms of economic pressure.



Amidst the mounting concerns over the safety of individuals' financial assets in banks, the rising number of bank failures, and the looming global recession, the potential ramifications of the United States losing its status as a global reserve currency cannot be understated. Such a loss would entail a significant erosion of the nation's economic power and influence in the international market. The risks associated with the potential failure of banks in Europe, are not to be taken lightly. The effects of its collapse could crumble the global financial system, sending shockwaves of economic instability worldwide.


Conclusion

While Brazil, Russia, India, China, South Africa, and other countries such as Saudi Arabia, Iran, etc. are using their local currencies for international trade, the use of the US dollar as the primary trading currency globally is declining. The adoption of alternative currencies for international trade faces challenges and the future of the international monetary system remains uncertain.


Highly recommend this video :

Is It Over for the US Dollar? - SPECIAL EPISODE - Robert Kiyosaki, Andy Schectman


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