The hegemony of the US dollar as the global reserve currency has been a pillar of the global financial system since the Bretton Woods agreement in 1944. However, the current trend suggests that its dominance could be at a crossroads, facing increasing pressure that, although still far from a definitive collapse, it points towards progressive de-dollarization. But when will de-dollarization reach its final phase? Never! is the answer given by some economists and analysts to the previous question. This is precisely what Mark Sobel points out, who emphasizes that the alarms about the imminent collapse of the dollar are exaggerated. He adds that while it is true that several countries are researching alternative currencies and payment methods, this It does not necessarily mean that they are abandoning the dollar. In fact, 88% of transactions in global currency markets are still carried out in dollars, demonstrating the resilience of the US currency to external shocks. Sobel, who spent 4 decades at the U.S. Treasury Department as Deputy Undersecretary for Monetary Policy and spent 4 years working at the International Monetary Fund (IMF), maintains that it is difficult to circumvent the global dominance of the dollar and, in fact, » This will continue for a long time, although it lacks threats,» as he recently pointed out.
“In my opinion, the renminbi may have increased its role as a global reserve asset and will continue to do so in the coming years, but it will not happen in an appreciable way and it is not happening in leaps and bounds now. Gold must also be taken into account because central banks' gold reserves are increasing. China, India and other countries are doing it. Mark Sobel, American economist.
Sobel also stops to talk about the role of bitcoin (BTC) and central bank digital currencies (CBDC) and how these assets challenge the dominance of the dollar as a global reserve asset. In short, he recognizes that de-dollarization is advancing, but he does not believe that it will become definitive.
Gold remains strong in the proportion of world reserves, in international loans, also in international trade and payments, and other sectors. Source: Bookins.edu.
Currency changes and a new world order
While some economists maintain that the dollar's share of reserve assets remains strong, despite some countries seeking to reduce their exposure to the US currency; Other analysts such as Ray Dalio maintain that, in effect, the dollar is weakening and that its wear and tear will increase progressively, as confirmed by historical facts. In his analysis titled «Changing World Order,» Dalio examines how power between nations varies throughout history, with empires collapsing and others rising. He highlights that this phenomenon occurs approximately every 250 years, and points out that the current world order—the American order—was established after World War II through the Bretton Woods agreement, which consolidated the dollar as the global reserve currency. Dalio, who is a prominent investor, who has developed investment philosophy and systematic decision making, addresses, in his analysis, the rise and fall of powers over time, in three key stages: a conflict that establishes a new order, a period of peace and prosperity that leads to financial bubbles, and finally, a collapse due to internal and external conflicts. This cycle repeats itself historically and provides valuable lessons for investors on how to anticipate future economic changes. In his document Dalio identifies that the indices of wealth and power of empires are built from eight key measures: education, competitiveness, technology, economic production, participation in world trade, military strength, financial strength and currency status. booking. In itself, it describes a «Big Cycle» that reflects how the strengths and weaknesses in these measures interrelate, causing rises and falls in the global influence of empires. It also uses the theory that the power cycle is divided into three phases: rise (gain of competitive advantages), peak (maintenance of that force while the seeds of its decline are nourished) and decline (loss of competitive advantages). In this context, Dalio suggests that when central banks inject large amounts of money into the economy, it is smart to invest in stocks, gold, bitcoin and other assets considered safe havens. He argues that understanding history is essential to anticipating future trends; For this reason, he highlights the cases of the British and Dutch empires as examples of how high debt and excessive money printing can lead to their decline. With record debt in the United States and the rise of emerging powers, The future of the dollar as the world's leading reserve currency is in an uncertain position.
From what Dalio suggests, it should not be taken for granted or assumed that the dominance of the US dollar will last forever. The accelerated adoption of non-dollar currencies in international transactions following collective Western sanctions against Russia is a reminder of former US Treasury Secretary Jacob Lew's 2016 warning: “The more we condition the use of the dollar and our financial system to adhere to the foreign policy of the United States, the more the risk of migration to other currencies and other financial systems grows in the medium term. As part of this story, it is necessary to understand that there is a rebellion against the dollar, something that can accelerate the arrival of a new world order.
This has been the rise and fall of empires throughout the centuries. Source: AsiaBussinesCouncil.org.
China and its decision to promote a new world order
“China is promoting a new world order in a changing geopolitical context,” says political analyst Ties Dams of Leiden University, the oldest in the Netherlands. Dams argues that China promotes a multipolar world in which Western hegemony fades. And to achieve this, the Asian country seeks to consolidate its influence through organizations such as the Shanghai Cooperation Organization (SCO) and BRICS. The analyst points out that China's strategy does not seek hegemony similar to that of the US, but rather to influence economically and offer an alternative to US policy. Overall, the author concludes that the rise of China is forcing the West to better recognize and understand non-Western dynamics in a changing world. As part of this, China is implementing its own strategy to protect itself against the risk of being excluded from the dollar-based financial system. This reflects a defensive approach to a potential “financial disconnection” by the United States. This is what analyst Zoe Liu explores in an article titled «China wants to get rid of the dollar.» In short, China is promoting “dedollarization” and does so by promoting the use of local currencies in international trade. Furthermore, initiatives to internationalize the renminbi seek to establish it as a global reserve currency, although the current dominance of the dollar in international trade still remains. In that sense, it is definitive that de-dollarization is advancing, but its culmination in a definitive phase still seems distant. Despite efforts to diversify reserves and increase altcoin adoptionboth the dominance of the dollar and the weight of the current reality insist that the transition will be gradual, not abrupt. The contrasting views of economists such as Mark Sobel and Ray Dalio illustrate the complexity of the factors influencing the future of the global monetary order. While some predict a more rapid change, others emphasize the strength of the dollar's status and its inclusion in the global sphere of influence. In an increasingly multipolar world, where geopolitical decisions and economic strategies are intertwined, the ability of countries like China to gradually displace the dollar will have a significant impact on the future of the global financial system. However, it is essential to remember that every empire and currency has a life cycleand the combination of history, politics, and economics will dictate how and when the true potential of dedollarization will be experienced. Thus, the evolution of the world monetary order will continue to be a topic of critical attention for investors, governments and analysts, who remain alert about the changes and adaptations that may arise in this complex scenario. The question is not only when will de-dollarization be completed? But how will economic and political relations be redefined in a constantly changing world?