Global Economic Intersection
Advertisement
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitIQ
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitIQ
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Why Dollar Dominance is Secure Despite Growth of Global Rivals

admin by admin
July 23, 2014
in Uncategorized
0
0
SHARES
2
VIEWS
Share on FacebookShare on Twitter

by Alan Shipman, The Conversation

In imploring the world to be less dependent on the US dollar for international transactions, French finance minister Michel Sapin is expressing a wish that many of the euro’s creators hoped would already be reality.

Backed by the bosses of some major French companies, Sapin argues in a Financial Times interview that Europe should break free from the longstanding use of the dollar for international commodity and goods transactions, and as the intermediary currency for foreign exchange trade. At present, the FT reports, half of all cross-border borrowing and lending and 87% of forex trade is conducted in US dollars, which also make up 60% of the reserves held by the world’s central banks.

On the face of it, it’s not an outlandish idea. Europe can claim to be a bigger unified economic space than the US, and in some ways it is more structurally balanced. The Eurozone’s current account has recently moved slightly into surplus, in contrast to the chronic US deficit. As a result, Europe avoids an American-style reliance on capital inflows to pay its way. Critics say it’s only the dollar’s reserve currency status that allows America to get away with this – uniquely borrowing abroad in its own currency, at near-zero interest rates. This, some allege, also enabled the massive international “imbalances” which led to the 2007-2008 crash, and have not been corrected by it. A “rebalancing” of the world economy, by switching global payments away from the dollar, is part of Sapin’s plea.

Currency rivalry

Unfortunately for the Eurozone, and other aspiring economic blocs in Asia and Latin America, the dollar’s status as reserve currency is more than an outmoded historical artefact. The US economy may no longer be the world’s biggest, if Europe is treated as a single commercial space. But the way that space has been constructed makes the euro a very pale substitute for the greenback. Euro-denominated debt is still backed by its national issuers, not the whole Eurozone, meaning that the European Central Bank (ECB) lacks the guarantee and lender-of-last-resort powers of the Federal Reserve – even if the ECB governor might pledge to do “whatever it takes” to preserve the Euro by supporting debts issued in it.


Michel Sapin is taking a stand – Michael Reynolds/EPA

That pledge has helped to stabilise the Eurozone by reining-in the interest rate premium being paid by its weaker peripheral members. But the austerity imposed on those members, and the deflationary bias this creates across the whole area, means that – for the foreseeable future – Eurozone growth is destined to be significantly slower than the US and other countries with a truly unified currency. The UK (with or without Scotland) could, improbably, overtake Germany in economic size if the widely-forecast growth differential is not corrected. France, although not a problem debtor, is stuck on a particularly lacklustre growth path, despite Sapin’s best efforts.

This means the US dollar will remain the obvious currency in which to hold assets and reserves, which in turn makes it the easiest currency for trading primary commodities and other goods and services. US dollar bonds give the holder a call on what is still the world’s largest and most reliable tax base, even when (or if) China overtakes it in absolute GDP. The need to narrow its fiscal and external deficits is making the US more fiscally assertive abroad – extending its tax net, and escalating the punishment of those who hide their assets or use corrupt practices to win foreign contracts. Fines imposed by the US on a French bank (for helping sanctions evasion) were one of the triggers for Sapin’s outburst. Yet it’s the Eurozone’s financial transaction tax proposal that is raising most hackles about extra-territoriality.

US USP

The US will continue to wield such power, knowing that it has preserved the virtuous circle (strong dollar demand enabling faster growth that reinforces dollar preference) and that it must underline its tax-raising strength in order to keep doing so.

Recent stand-offs between the president and Congress show that the US federal budget isn’t problem-free. But at least it exists – and is large enough to administer a meaningful fiscal stimulus when recession threatens. That’s something the Eurozone still has to leave to member states, of which the only one empowered to run a countercyclical deficit insists on surpluses that only prolong the surrounding downturn.

Even if the US economy loses its global pre-eminence, too much of the world’s wealth is tied up in dollars for any country to favour more than a marginal shift away from it. If China, Japan, the Gulf states or other major holders of dollar debt wish to switch to other currencies on a large scale, they will need to do it gradually. A rush for the exits would not only devalue their investments, but also undermine external trade that will remain reliant on the US market, given Europe’s self-containment and slow growth.

The euro may, despite its zone’s subdued economy, incrementally raise its share of global transactions. The world’s investors have an appetite for Europe’s single currency which it has been slow to sate, because of its aversion to centralised borrowing. China’s biggest sovereign wealth fund, among others, has made clear its willingness to buy more euro debt, if the ECB can provide it. But the Eurozone’s ability to do so remains fundamentally constrained by its design. And China’s desire to invest abroad also confirms that, despite the impressive absolute size of its economy, its own renminbi (RMB) is a long way from significant international status. For this it would need (among other American characteristics) a more open capital account and flexible exchange rate, a much more transparent domestic financial system, and stronger assurance that it is not about to repeat Japan’s bubble-bursting lapse into stagnation. By letting its monetary resources finance US stimulus, China has ensured the dollar will stay dominant for at least another decade.

The ConversationAlan Shipman does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

Previous Post

Bond Yield Carry Traders Need To Fade Upcoming Econ Events

Next Post

Facebook Drives 20x As Much Traffic As Twitter Does

Related Posts

Weaker Dollar Keeps Bitcoin Above $30K As Analysts Target 60% BTC Dominance
Economics

Weaker Dollar Keeps Bitcoin Above $30K As Analysts Target 60% BTC Dominance

by John Wanguba
May 20, 2022
Ethereum Developers Tip The Merge Might Happen In August ‘If All Goes As Planned’
Business

Ethereum Developers Tip The Merge Might Happen In August ‘If All Goes As Planned’

by John Wanguba
May 20, 2022
Commonwealth Bank Puts Crypto Trading Test On Ice As Regulators Hesitate
Business

Commonwealth Bank Puts Crypto Trading Test On Ice As Regulators Hesitate

by John Wanguba
May 20, 2022
Musk Hints He Could Reprice Twitter Deal As He Looks At Fake Accounts
Business

Musk Hints He Could Reprice Twitter Deal As He Looks At Fake Accounts

by John Wanguba
May 18, 2022
Madonna Joins Hands With Digital Artist “Beeple” To Launch New NFTs
Business

Madonna Joins Hands With Digital Artist “Beeple” To Launch New NFTs

by John Wanguba
May 18, 2022
Next Post

Facebook Drives 20x As Much Traffic As Twitter Does

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins banking Binance Bitcoin Bitcoin adoption Bitcoin market Bitcoin mining blockchain BTC business Coinbase crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi digital assets Elon Musk ETH Ethereum Ethereum blockchain finance funding government investment market analysis Metaverse mining NFT NFT marketplace NFTs nonfungible tokens nonfungible tokens (NFTs) price analysis regulation Russia social media technology Tesla the US Twitter

Archives

  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Weaker Dollar Keeps Bitcoin Above $30K As Analysts Target 60% BTC Dominance
  • Ethereum Developers Tip The Merge Might Happen In August ‘If All Goes As Planned’
  • Commonwealth Bank Puts Crypto Trading Test On Ice As Regulators Hesitate

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

en English
ar Arabicbg Bulgarianda Danishnl Dutchen Englishfi Finnishfr Frenchde Germanel Greekit Italianja Japaneselv Latvianno Norwegianpl Polishpt Portuguesero Romanianes Spanishsv Swedish