There are many speculations that abound in blogs and podcasts about an alleged and imminent replacement of the dollar as the world reserve currency. These hecatombic pieces of advice, however, seem to be contradicted by the world’s main currency markets, where the US currency continues to gain ground against the euro and the pound sterling. Not to mention the position of the rest of the world’s currencies.
And while it is true that in the first days of March the volatility index of the currencies rose to close to 10% – approaching the record set in 2020 by the pandemic induced by COVID 19 – on April 4 it closed at 8.11%.
On the other hand, the proportion of world transactions that are carried out in US currency, which normally represents 60% of the world total, gained ground to reach 66%.
So the stubborn economic reality contradicts these predictions, which are probably based on a historical assimilation to what happened during the Second World War. At that time there were two interdependent economies that were the United States and England. By having to bank England the greatest effort to fight fascism, its economy entered the area of insolvency. Hence, her currency lost the strength that had led it to be the largest reserve of value in the world. At the end of the war and the economic rhythm that preceded the conflict was restored, England had lost a good part of its productive infrastructure. For this reason, the pound sterling gave up its position as a fundamental store of value to the dollar whose economy was intact.
Today the war that numbs our souls due to its atrocity is not endangering the production capacity of goods and services of the United States or China, which are the two growth nodes of the world economy that are also interdependent.
And as long as China continues to use two currencies that separate domestic and international transactions, the yuan or renminbi could hardly win favor with currency investors as a store of value.
To this we must add that, although some sectors of the North American economy have been hit by the two waves of technological change, it is no less true that North American companies maintain a top place in terms of productivity in the leading activities of digitization. And while China is accelerating its technology absorption cycle and has managed to establish an unbeatable global manufacturing platform in terms of cost structure, it still has a long way to go when it comes to widespread digitization.
In short, the dollar could give up part of its position to the Chinese currency throughout this century. But for China to collapse, it would have to unify its currency and its economy stop being interdependent with the US. None of those signs are seen on the horizon.
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