There Is No Such Thing As De-Dollarization. The Dollar Remains To Be The Global Reserve Currency

I believe that the dollar's hegemony is beneficial to the US, as well as its government, and most of its citizens - a state which is likely to continue into the foreseeable future.

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Approximately 88% of all international transactions are carried out using the dollar, according to one estimate. There are some who fear that this dominance will not last, while others wonder if it should last: Doesn't a stronger dollar hurt the exports of the US and therefore the economy of the US?

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I believe that the good news, at least for American citizens, is that the dollar's hegemony serves the interests of the US, its government, and the majority of its people. As a result, it is likely that the situation will persist for some time to come.

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In recent years, this issue has become more and more relevant. There are a number of dollar-based networks that are cut off from Russia because of sanctions. A number of other countries, including Brazil, India, and Saudi Arabia, are making at least cosmetic moves toward becoming less dependent on the dollar for their international exchange rates, as a result of their efforts to "de-dollarize."

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In the same way that China manufactures phones or Japan manufactures cars, "a sound and focal dollar" is a good or service produced by the US. It is true that American dollars are traded for foreign goods and services, but it is also true that American dollars are exported as “dollar services.” Much like Zara and Gap brand clothes, the US brands its dollar as well as markets it.

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Therefore, it is possible to reconceptualize the much-vaunted US trade deficit as a means of bartering: An exchange of one service (dollar stability) for another (e.g., what the US purchases from China). The ability to market dollars so effectively, or "buy things," enables American consumers to live better lives.

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The act of selling a good or service can sometimes be problematic, or at least mixed blessings. Venezuela's economy is heavily dependent on oil revenues, and with oil prices being unstable, its revenue is unreliable. US dollar demand is not as volatile as other currencies. From a broader perspective, it might even appear that the dollar has an inviolable future as a safe haven currency, despite the conflict in Ukraine and Chinese ambitions.

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Any danger here is the possibility of a US default as a result of the forthcoming debt ceiling debate in Washington. Even if that happened, however, it would not be evidence that dollar hegemony must end, nor an argument against it. That would only serve as further evidence of the stupidity of American politics.

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Strong US dollars make exports of other goods and services harder for America. The reality of this situation is neither exceptional nor undesirable. South Korea would be unable to export alternative products such as K-pop if it exported more Samsung phones, for instance.

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There is always competition for resources, funding, and attention among economic activities in a country. That's just an illustration of scarcity as a basic economic principle. There may be a stronger attraction to US dollars than US tractors or movies, as a measure of America's history as a beacon of relative stability.

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How far will the de-dollarization discussion go? Not very much, probably. In spite of some restrictions on Chinese investment in industries sensitive to national security, the US's financial markets remain among the world's deepest and most liquid. Both international and domestic transactions within the US are strongly influenced by a dominant currency. Whether domestically or internationally, liquidity breeds liquidity.

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A transaction involving two currencies may exceed 100% because 88% of all international transactions are accounted for by the dollar. The euro, with 31%, is only a modest competitor. In contrast to the dollar, the euro has no national government attached, and the European Union is not powerful enough to match the United States militarily.

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In international transactions, the yuan accounts for only 7%, and China appears reluctant to open up its capital markets to prevent rapid capital outflows and financial crises. Nonetheless, the yuan does not have a strong chance of becoming a global reserve currency without open capital markets.

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It is sometimes difficult to understand or explain economics. In the case of the US dollar, neither is true. There are simple and intuitive reasons why the dollar will continue to play such an important role in the US economy.

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