The dollar king refuses to leave the throne

The great superpower of the United States is called the dollar.

Its hegemony, unchallenged since the end of World War II, goes beyond its leadership in global reserves and trade.

The greenback has also been a political weapon to impose sanctions on regimes hostile to Washington, such as Russia or Iran.

With the world's major blocs retreating, other currencies—from the euro to the yuan—are eager to dispute its throne.

And many other nations are looking for alternatives to get out of the fence that the US currency draws.

The latest movements in Argentina, Brazil or Saudi Arabia have reopened the debate on the supposed decline of the dollar, but analysts do not see immediate changes.

At most, in the medium term.

“A multipolar international monetary system would better fit our global economy,

It's been almost two centuries since the dollar was tagged as

.

It was still a mere shadow of the pound sterling when the pens of Washington Irving, Charles Dickens or Lord Lytton already used that word to refer to the greenback.

Its hegemony did not come until after World War II, with the Bretton Woods agreements.

And since then no one has been able to unseat that currency.

This explains, in part, the recurring debate on

.

The president of Brazil, Lula da Silva, has now helped to reopen it.

"Every night I wonder why all countries have to base their trade on the dollar," he said recently during a visit to China, that he aspires to boost his currency in trade.

The words of the Brazilian president added more wood to the lively debate in the Anglo-Saxon press on the dollar.

Washington is capable of sinking banks just by pointing fingers at them or imposing sanctions almost unilaterally thanks to its currency.

But the main feature of any coin is its double side.

And the reverse of the dominance of the dollar is that the fear of retaliation leads many countries to try to flee from its circuit.

"When we use financial sanctions tied to the role of the dollar, there is a risk that over time it could undermine its hegemony," Treasury Secretary Janet Yellen also recently told CNN in an interview.

Kenneth Rogoff, a professor of economics at Harvard University, plays down that fear.

“The influence of the dollar has been growing steadily during the 21st century.

Not only Brazil has heated this debate.

In recent weeks, Argentina has announced that it is exchanging the dollar for the yuan in its trade with Beijing, Saudi Arabia has stated that it is open to trade in other currencies, India is seeking to boost trade in its currency, and China has closed an operation with the company. French TotalEnergies in yuan.

The role of the dollar has also been questioned from within the United States.

The tycoon Stanley Druckenmiller has been dispatched this week against the currency and has explained that he is even betting on the fall of it.

“You have Lula asking why we have to trade in US dollars.

And he is right,” he stated.

According to the International Monetary Fund (IMF), in 1999 the dollar represented more than 70% of world reserves.

That proportion has dropped to 58.4% in 2022. Does that indicate

?

Valentina Bruno, a finance professor at American University, believes that the comments that consider it so are "exaggerated."

“You only beat a currency with a better one.

If we move away from the dollar, which one do we go to?” she wonders.

To begin with, the IMF data shows that there are fewer reserves in dollars, but together with the other three traditional currencies - the euro, the yen and the pound - it still accounts for almost 90% of the reserves.

Beyond reserves, the data from the Bank for International Settlements (BIS) is eloquent: 88% of all currency transactions are made against the dollar, which also accounts for half of international trade.

“The dollar is everywhere, not just within the borders of the US”, adds Bruno.

The role of the yuan and the euro

Neither does the flight by countries hostile to Washington stand out as a de-

factor .

“Between 2014 and 2021, Russia decided to diversify its reserve holdings away from the US because of the sanctions it was going through and possibly in anticipation of sanctions to come.

However, to a large extent, Russian reserves continued to be held in US dollars,” says Robert McCauley, a fellow at the Global Development Policy Center at Boston University and a former Federal Reserve and BIS official.

“Yes, other countries can go the way of Russia.

Especially regimes that can be sanctioned.

But these states represent a very small part of the global financial system”, agrees Stefan Gerlach, of the

Center for Economic and Policy Research.

China is eager to dethrone the US with its currency, the yuan.

For the moment, Beijing is managing to make noise with the growing weight of that currency in Russia's reserves, the loans it grants to developing countries or the trade agreements with Buenos Aires.

“There has been some growth in yuan trade.

But in many cases, like that of Argentina, it has been a

forced;

that is to say, that China conditions the granting of credit lines to the use of the currency”, explains Alicia García Herrero, Natixis chief economist for Asia-Pacific.

In fact, Beijing has not gained ground in central banks despite the movements of Russia or Israel, which has incorporated the yuan into its portfolio.

"The proportion of international reserves in that currency has fallen since the war in Ukraine began," says García Herrero.

This is confirmed by the IMF data, which indicates that these fell by almost 12% in one year.

Beijing is not the only capital interested in dethroning the dollar.

The European Union has also repeatedly tried to relaunch the euro as a global currency.

Donald Trump, former president of the United States, ended up giving Brussels the reasons it lacked to convince itself of that mission with the sanctions on Iran.

The EU distanced itself from that decision, but the international payment network Swift, based in Belgium, decided to follow Washington's guidelines and close the channels with Tehran.

In turn, European companies were exposed to sanctions.

“There was a change in Brussels in response to the unilateralism of the United States in its sanctions on Iran.

Strategic autonomy became the goal, along with greater use of the euro as an international currency,” says Robert McCauley.

Even so, the euro also fails to take off as a world currency,

The dollar has yet to find a match for itself, but that does not mean that the global system is set in stone.

Barry Eichengreen is committed to a multipolar system, although he warns that the transition will be long.

Rogoff also believes that, if it arrives, this new order will still take time.

“Fifteen years ago, everyone thought that we were heading towards a multipolar system in a decade or two.

Now that day seems further away than ever, and the dollar has become more central, not less.

Of course, world events or technology could change that.

But it is not likely to happen in the short term, ”he says.

“The dollar king is not ready to abdicate”, concludes Valentina Bruno.

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