Economist Niall Ferguson has projected that the US dollar is expected to lose value against the Chinese yuan and some cryptocurrencies. However, the decline is not expected to happen anytime soon, as the US remains the dominant global economic power.
In an interview with CNBC, Ferguson said that the US’s weakening global power and China’s rising economic influence may cause the dollar’s downfall. The yuan, also known as the renminbi, has been on an upward trend, supported by China’s economic recovery from the pandemic and its commitment to global trade.
Ferguson, a history professor at Stanford University and senior fellow at the Hoover Institution, said that the dollar’s reserve currency status has been eroding for some time. He pointed out that other nations are trying to limit their reliance on the dollar, and “the Chinese have been particularly successful in getting people to use the renminbi.”
Furthermore, Ferguson noted that the Chinese yuan has been increasing its share in international transactions, which was evident when it overtook the euro as the second-most-used currency last year. This shift marked a significant milestone in China’s push for global financial dominance.
In addition to the yuan, Ferguson also sees cryptocurrencies as a potential threat to the dollar’s supremacy. He believes that Bitcoin and other digital assets have already gained mainstream acceptance and can serve as a store of value or medium of exchange.
However, Ferguson cautioned that cryptocurrencies are still not backed by any real-world assets and remain a speculative investment. He also warned that governments and regulatory authorities may crack down on the industry, which could cause a drop in their value.
Despite predicting that the dollar could decline, Ferguson emphasized that the currency is still the world’s most dominant reserve, trade, and commodity currency. He argued that the US’s military, scientific, and technological capabilities, as well as its institutions, will continue to underpin its dominance in the global economy.
Ferguson’s prognosis is consistent with other financial experts who predict that the dollar’s dominance could decline in the coming years. Ray Dalio, founder of Bridgewater Associates, said in an interview with Yahoo Finance that he believes the US may soon face significant challenges to maintain its economic supremacy.
Meanwhile, BlackRock CEO Larry Fink also expressed concerns that the dollar may lose its reserve currency status, given the massive budget deficits and polarized political climate in the US.
However, both Dalio and Fink believe that the US’s ability to manage technological advances and attract global investment could help stem the dollar’s decline.
In conclusion, Niall Ferguson’s forecast that the dollar could fall against the yuan and cryptocurrencies is not a new trend, but one that has been gradually taking shape for some time. While the US remains the world’s dominant power in the short term, China’s formidable economic growth and emerging digital currencies may eventually challenge the dollar’s supremacy. It is unclear when or if this shift will happen, but investors should always balance their portfolios with various currencies and assets to mitigate their risks.
The recent statements made by former Brazilian President Luiz Inácio Lula da Silva about the dominance of the US dollar in global trade and foreign exchange systems reflect a growing sentiment among many countries and leaders around the world. The idea that countries should be able to conduct trade in their own currencies, without having to rely on the US dollar, has been gaining traction in recent years as more countries seek to reduce their dependence on the United States.
Lula’s comments were made during a speech at the New Development Bank in Shanghai, where he questioned why every country needed to trade in the US dollar. He asked who decided that the US dollar would be the dominant currency after the collapse of the gold standard and pointed out that countries now had to chase after dollars to export when they could be exporting in their own currencies.
This sentiment is not new, as Lula’s words immediately brought to mind the musings of another president more than half a century ago. In the 1960s, French President Charles de Gaulle famously called for an end to the dominance of the US dollar and advocated for a new international monetary system that would be more equitable for all countries.
De Gaulle’s calls for change were met with resistance from the United States, which saw the US dollar as a crucial tool for maintaining its global hegemony. However, in recent years, the US dollar’s dominance has been challenged by the rise of new economic powers, such as China and Russia, who have been pushing for an alternative global reserve currency.
One factor driving this push for currency diversification is the instability and volatility of the US dollar. As the world’s reserve currency, the value of the US dollar can have a significant impact on global trade and financial markets. This has led many countries to seek alternative currencies and diversify their foreign exchange reserves to reduce their exposure to the US dollar’s fluctuations.
Another factor is the growing political tensions between the US and many of its traditional allies, such as Europe and Canada. As the US government becomes more inward-looking and protectionist, many countries are looking for ways to reduce their dependence on the US and strengthen their own economic sovereignty.
For Brazil, as a major exporter of commodities, reducing its dependence on the US dollar could have significant economic benefits. By being able to trade in its own currency, Brazil would be able to reduce its exposure to currency fluctuations and better manage its trade relationships with other countries.
However, the challenge of moving away from the US dollar’s dominance is not a simple one. The US dollar remains the most widely used currency for trade and investment, and the US government has a powerful incentive to maintain its dominance. Additionally, many countries are themselves dependent on the US dollar for access to global financial markets, making it difficult for them to shift away from it.
Nevertheless, the growing calls for currency diversification and greater economic sovereignty reflect a broader trend towards a more multipolar world order, and suggest that the dominance of the US dollar may not be as unassailable as it once seemed. As more countries seek to assert their own interests and reduce their dependence on the US, the global financial system is likely to become more diverse and complex, with significant implications for global trade, finance, and politics.