Economy

Saudi Arabia has just said it is now ‘open’ to the idea of ​​trading in currencies other than the US dollar – does this spell doom for the dollar? 3 reasons not to worry

Saudi Arabia has just said it is now 'open' to the idea of ​​trading in currencies other than the US dollar - does this spell doom for the dollar?  3 reasons not to worry

Saudi Arabia has just said it is now ‘open’ to the idea of ​​trading in currencies other than the US dollar – does this spell doom for the dollar? 3 reasons not to worry

The 2023 World Economic Forum has been going on for just a few days, and we’re already getting a glimpse of the future the global elite envisions for us all.

Saudi Arabia’s finance minister, Mohammed Al-Jadaan, stunned reporters in Davos when he said the oil-rich nation was open to trading currencies alongside the US dollar for the first time in 48 years.

“There is no problem discussing how we settle our trade agreements, whether it is in the US dollar, the euro or the Saudi riyal,” Al-Jadaan said.

His comments are the latest signal that powerful nations around the world are planning a “de-dollarization” of the global economy.

Here’s why replacing the dollar is gaining popularity and why dethroning the dollar is easier said than done.

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Revolt against the dollar

The dollar’s dominance of global trade and capital flows goes back at least 80 years. Over the past eight decades, the United States has been the world’s largest economy, most influential political entity, and most powerful military force.

However, economists from other countries are increasingly concerned that the country has “weaponized” this position of power in recent years, according to the CBC. The United States implements sanctions to punish countries in conflict, threatens to devalue its own currency to win trade wars, and uses it to prop up its own economy at the expense of the rest of the world.

Not surprisingly, these moves have inspired a backlash from China, Russia and other prominent countries.

At the 14th BRICS summit last year, Russian President Vladimir Putin announced measures to create a new “international currency standard.” Meanwhile, China has encouraged oil producers and major exporters to accept the yuan for payments.

This revolt against the US dollar may erode some of its influence, but there are reasons to believe that the dollar’s dominance will be maintained.

It would be difficult to replace the dollar

The dominance of the US dollar is understated. At the end of 2022, the dollar accounts for 59.79% of total foreign exchange reserves. By comparison, the euro accounts for 19.66%, while the Chinese renminbi only accounts for 2.76% of global reserves.

China could expand its market share by twenty times and still lags behind the US dollar by a wide margin.

In short, replacing the US dollar in foreign reserves is easier said than done.

READ MORE: 4 Simple Ways to Protect Your Money from White-Hot Inflation (Without Being a Stock Market Genius)

Other countries have a lot of catching up to do

Reserve currency status is closely correlated with the size of the issuing country’s economy. In other words, the largest economy usually has reserve currency status.

During the 19th century, the British pound was the world’s reserve currency because the colonies of the British Empire needed it for trade and commerce. In the last century, the US dollar has dominated because the US economy is the largest.

China’s growth has slowed in recent years, and some believe it will never overtake the United States. Meanwhile, Russia was the 11th largest economy before it invaded Ukraine, despite being economically smaller in size than California or Texas alone.

And India is growing fast, but it would need to grow 628% to match US GDP today. It can take 25 years.

America’s economic lead is simply unaffordable.

The US will still be OK

The final reason Americans shouldn’t be worried about the dollar losing influence is that the worst-case scenario isn’t that bad. Some analysts believe that the future could be more multilateral.

The US may lose influence in some segments of the global economy, but not lose dominance everywhere. For example, the Chinese yuan may become more important for trade and cross-border payments, but the dollar may remain the preferred reserve currency for central banks in developed countries.

It is far from an economic nightmare for Americans.

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This article provides information only and should not be construed as advice. It is supplied without any kind of guarantee.

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