Recent happenings such as de-dollarisation and the US debt ceiling crisis manifest the ending of the American hegemony globally.
The US dollar, which is highly utilised in international trade, is regarded as the reserve currency of the world for a number of different reasons. Which prolifers the sheer enormity of the American economy and the American hegemony on the global stage. These reasons include the dollar’s relative stability and the market for U.S. debt.
The Compromise of 1790, led by Hamilton, persuaded Jefferson and Madison to assume Revolutionary War debts in exchange for locating the capital on the Potomac River. Paying bondholders in full established good credit for the US. This contributed to the dollar becoming the world’s reserve currency. Consequently, countries like China, Japan, and the UK became significant markets for the currency, making it easier for the US government to finance its national debt with lower interest rates.
US Debt Ceiling Crisis
Congress faces a heated battle over raising the debt ceiling, risking severe economic consequences if the US defaults. Negotiations are slow despite temporary payment measures by the Treasury. Republicans demand spending cuts before extending the ceiling, while Democrats argue for a clean increase. Failure to pay obligations would impact vital programs and potentially shock global markets. The approaching “X date” puts the stability of the global financial system at risk, as it relies on the stability of the American currency.
A Threat to Dollar
The US dollar is the dominant global reserve currency due to its perceived stability. However, if doubts arise regarding the US’s willingness to pay its debts, it could have significant short and long-term consequences, extending beyond national borders. The demand for US treasury securities allows the US to borrow money at low-interest rates, aiding during economic turbulence like the recent pandemic. But if confidence wanes, investors may sell treasuries, weakening the dollar and jeopardizing low-interest rates. Previous debt ceiling battles have seen interest rate increases, raising borrowing costs by substantial amounts. This risk could encourage foreign institutions or countries to diversify their holdings and explore alternative options, though no viable alternative to the dollar as a reserve currency exists at present.
“Changes Unseen In A Century Are Already Happening”…
Iraq bans US dollar transactions in the latest move towards ‘de-dollarisation’. Rupee rises 15 paise to close at 82.70 against US dollar. Venezuelan President Nicolas Maduro has announced that Venezuela will shift away from using U.S. dollars in trade
Geopolitical dynamics are rapidly evolving, with several African countries attending a conference in Moscow titled “Africa and Russia in a Multipolar World.” This reflects the shift from a unipolar to a multipolar global order. Leaders from Mexico, El Salvador, Honduras, and even some German officials are challenging the dominance of the United States. Efforts are underway for improved understanding, alliances, and ties between countries like Iran, Turkey, Azerbaijan, Russia, and China. The Afghan situation is moving towards stability, and there are notable diplomatic developments, such as Syria’s President visiting the UAE. The ongoing shifts indicate a global uprising against the American Hegemony and a reevaluation of global power dynamics. Nations are seeking partnerships based on true facts and realities rather than misconceptions or falsehoods. No single country can unilaterally dictate global order, signalling the need for a collaborative approach.