The continued erosion of confidence in the United States at the political level will have an impact on the sovereignty of its currency (the dollar).
Writer Rana Forouhar says in an article published by the Financial Times that the era of globalization that is not subject to any restrictions is over, and this is not a matter of controversy at this stage for obvious reasons including the shrinking of complex international supply chains in the post-Covid-19 period, the disengagement between states United and China.
It is hard to imagine a reset of the neoliberal mentality of the 1990s even if Joe Biden won the US presidential election, or if the European Union went through a moment of cohesion in response to the pandemic.
Forouhar suggested that the world would become a three-pole, or at least a bipolar, with many countries moving towards adopting more regional policies in the areas of trade, migration, and even future capital flows.
And there are many reasons behind this, some of which are worrisome, such as the escalation of national conflicts, and others are benign, as some countries want to create more flexible and inclusive local economies, according to the author.
The rule of the dollar
The author stated that this raises a question that was seen as controversial: Are we entering into a world beyond the dollar? This may sound like a trick question, given that more than 60% of global currency reserves are in dollars, which is used in the vast majority of global trade transactions.
The Fed's support to dollar markets outside the United States in response to the emerging Corona Virus crisis also provided additional impetus to the global sovereignty of the dollar, and as a result, many people argue that the Fed cannot be fought.
Indeed - Forouhar says - the hegemony of the American banking system and the amount of liquidity available from the dollar's currency supported by the Federal Reserve System will give the dollar indisputable sovereignty in the global financial system and capital markets indefinitely.
She added that "nothing can be replaced by something", and this means that although China, Russia and other emerging market countries, as well as some rich countries such as Germany, want to move away from the hegemony of the dollar, they have no real alternatives, and this desire is growing, especially in an increasingly world It uses the financial sector as a weapon.
Account should be taken of recent moves by Beijing and Washington to reduce private sector participation in each other's capital markets, according to the author.
However, the dollar cannot be compared to the euro, which represents about 20% of global reserves in terms of liquidity, and there are still many doubts about the future of the euro area, not to mention that the gold market is very narrow.
Try to challenge the dollar
Forouhar indicated that China recently bought large quantities of gold as a precaution against the value of its dollar stocks, and Beijing has tested its digital currency system, the "renminbi", to become the first sovereign country to offer a cryptocurrency backed by the central bank.
According to the author, the orbit of the "Belt and Road Initiative" - launched by China - is likely to be an attractive alternative for countries and companies that want to trade with each other without the need to use dollars to hedge exchange rate risks.
But she says that this move alone should not be a challenge to the sovereignty of the dollar, even though it was sufficient to prompt former US Treasury Secretary Hank Paulson - a man who does not make comments on issues without being important - to write a recent article examining the future of the dollar.
She noted that the European Commission’s plan to boost the recovery budget for bailing out the Union after the Covid 19 crisis by issuing debt securities - which will be repaid through tax collection from across the European Union - could become the foundation of a true financial union, and in the end it is The world is likely to see the emergence of the United States of Europe and the growing popularity of the euro.
Independence of the energy sector
Forouhar says that the continuing deterioration of relations between the United States and Saudi Arabia is likely to undermine the value of the dollar, as one of the many reasons why central banks and global investors hold the dollar is that oil is priced.
According to the author, continued Saudi Arabia measures to undermine the US shale oil industry have strained the relationship between the administration of President Donald Trump and Riyadh, and it is unlikely that Biden's presumed US President - who is likely to follow Barack Obama's pro-Iranian policy - will repair this relationship.
Robert Kaplan, head of the Federal Reserve Bank of Dallas, was quoted as saying that the independence of the energy sector remains a "strategic important factor" for the United States, adding that "there will still be abundant production of shale oil in the United States in the future", but he asks to ask: Who will fill the Saudi vacuum ? Perhaps China wants to price oil in RMB.
She says there are questions about the way in which the informal support provided by the Federal Reserve to US government spending in the wake of the Corona pandemic spread politicized the money supply.
But the author concludes that the most important thing is for the United States to maintain confidence? It can survive economically as long as it is still politically credible.