For many years, the US dollar has been the predominant reserve currency in the world, and throughout that period, several rivals have emerged and fallen.
The supremacy of the dollar has been so pervasive, it is a fact, that a large number of people have never thought about what may happen if they abandoned it in favour of something else.
However, recent changes in the global order may indicate that the US dollar’s position is unstable at the moment.
Political journalist Fareed Zakaria recently warned, “If the US dollar’s global supremacy erodes, America will face a reckoning like none before” in reference to his fears over the US dollar’s waning power.
The recent changes to the international system certainly seem to pose a threat to the dollar in these conditions, but they also raise a lot of uncertainties.
What these developments would signify for global capitalism is a question that could not be avoided.
Since the end of World War II and the subsequent establishment of the Bretton Woods System in the middle of the 1940s in an effort to stabilise the global monetary system, the US dollar has historically ruled the financial world.
This system established a global currency exchange system tied to the U.S. dollar, which was afterwards linked to the price of gold.
However, the Bretton Woods system broke down because it was importing more than it was exporting as European and Japanese exports became more competitive with US exports.
This added to pressure on the dollar’s gold-peg due to increasing inflation and a decline in US gold reserves.
As a result, President Nixon revealed his new economic strategy in 1971, known as “Nixon Shock”, which terminated the direct conversion of US dollars to gold and abolished both the gold standard and the cap on the quantity of money that could be issued.
Despite this incident, the dollar continued to be the world’s reserve currency, or perhaps there weren’t any suitable alternatives at the time.
The “yuan” will be the preferred currency at the three-day summit hosted by Chinese President Xi Jinping, according to recent comments from the president of Russia.
“We are in favour of using the Chinese yuan for settlements between Russia and the countries of Asia, Africa, and Latin America,” Putin stated during a meeting. In addition, there are rumours that the BRICS may create a “new currency” that would serve as a superior alternative reserve currency and be pegged to the price of gold.
There may be a number of causes for these awkward actions, but the Ukrainian war is one that cannot be disregarded.
Political economists and sanctions experts claim that the United States’ hegemony over the world financial system and its capacity to militarise it.
This causes other countries to worry that the US could one day use the strength of its currency against them in the same manner that it has sanctioned Russia.
This allows them to lessen their reliance on the dollar, which in turn encourages them to explore other options to lessen the dollar’s hegemony.
De-dollarization, or shifting away from the US dollar as the main global reserve currency, may therefore have a number of benefits for capitalism at large.
First off, this development might contribute to lessening the concentration of economic power in the hands of the United States of America.
Furthermore, countries could lessen their susceptibility to the political and economic risks associated with the US dollar, such as US sanctions and market caprice, which could be clearly seen in the form of sanctions on Russia, by decentralising the currency and financial systems used in international trade and finance.
De-dollarization could also promote financial strength and stability by reducing the negative effects of the US dollar and other associated risks on the global financial system.
The interconnectedness of the global financial system can result in financial contagion and instability, as was demonstrated during the financial crisis of 2008.
Therefore, by encouraging a more diverse and decentralised financial system, de-dollarization and currency diversification could reduce the likelihood and severity of future financial crises.
According to recent developments and factors, it appears that the US dollar’s hegemony may be in jeopardy, and growing threats to its status may trigger a gradual transition to a multipolar global financial system or other options, such as a switch to a multi-currency global economy.
Furthermore, even while the dollar’s hegemony is in danger, this won’t harm global capitalism; on the contrary, it will help it expand and have far-reaching effects.
Thus, it will be interesting to observe how these trends play out and determine the future of global capitalism as the US continues to wrestle with these issues brought on by the rivals.
