Saudi Arabia just said that it is now “open” to the idea of ​​trading in currencies other than the US dollar – does that spell doom for the dollar? 3 reasons not to worry

Saudi Arabia just said that it is now “open” to the idea of ​​trading in currencies other than the US dollar – does that spell doom for the dollar? 3 reasons not to worry

The 2023 World Economic Forum has been going on for a few days now, and we are already catching a glimpse of the future that global elites imagine for all of us.

Saudi Arabia’s finance minister, Mohammed al-Jadaan, stunned reporters in Davos when he expressed the oil-rich country’s openness to trading currencies alongside the US dollar for the first time in 48 years.

“There are no problems discussing how our trade arrangements will be settled, whether it is in US dollars, euros or Saudi riyals,” Al-Jadaan said.

His comments are the latest sign that powerful countries around the world are planning to “de-dollarize” the global economy.

Here’s why replacing dollars is gaining popularity and why getting rid of dollars is easier said than done.

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Rebellion against the dollar

The dollar’s dominance of global trade and capital flows goes back at least 80 years. Over the past eight decades, the United States has been the world’s largest economy, most influential political entity, and most powerful military power.

However, economists from other countries are increasingly concerned that the country has “consolidated” this position of strength in recent years, according to CBC. The United States imposes sanctions to punish countries in conflict, threatens to devalue their currency to win trade wars and leverage them to prop up their economy at the expense of the rest of the world.

Unsurprisingly, these moves have inspired a backlash from China, Russia, and other prominent countries.

At the 14th BRICS Summit last year, Russian President Vladimir Putin announced measures to create a new “international currency standard”. Meanwhile, China is urging major oil producers and exporters to accept yuan payments.

This rebellion against the US dollar may erode some of its leverage, but there are reasons to believe that the US currency’s dominance will continue.

Replacing the dollar will be difficult

The dominance of the US dollar is underappreciated. As of late 2022, the dollar accounts for 59.79% of all foreign reserves. In comparison, the euro accounts for 19.66%, while the Chinese renminbi accounts for only 2.76% of global reserves.

China can expand its market share Twenty times It still lags behind the US dollar by a wide margin.

Simply put, replacing the US dollar with foreign exchange reserves is easier said than done.

Read more: 4 simple ways to protect your money from severe inflation (without being a stock market genius)

Other countries have a lot to catch up with

The status of the reserve currency is closely related to the size of the issuing country’s economy. In other words, the largest economy usually has reserve currency status.

During the nineteenth century, the British pound was the world’s reserve currency because the colonies of the British Empire needed it for trade and commerce. Over the past century, the US dollar has dominated because the US economy is by far the largest.

China’s growth has slowed in recent years and some believe it will never overtake the United States. Meanwhile, Russia had the 11th largest economy before it invaded Ukraine, despite being smaller in economic size than California or Texas alone.

And India is growing rapidly, but it would need to grow by 628% to match the GDP of the United States today. That could take 25 years.

America’s economic leadership simply cannot be overcome.

The United States will still be fine

The last reason Americans shouldn’t worry about the dollar losing leverage is that the worst-case scenario isn’t so bad. Some analysts believe that the future could be multilateral.

The United States may lose influence in some sectors of the global economy, but it does not lose its hegemony everywhere. For example, the Chinese yuan could become more important for cross-border trade and payments, but the dollar could remain the preferred reserve currency for central banks in developed countries.

This is far from an economic nightmare for Americans.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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