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USD: doomsday looming?


Below the surface

Whenever there is a slightest wind blow in the economic environment, investors run for safety and end up with piles of the USD in hand. The world is used to perceive the US dollar as a universal safe haven and doesn’t seem to doubt the reliability of the American currency in this sense. But what if this was to end soon? There are opinions that this is one of the very possible scenarios in the nearest future.

Behind the curtain

Fundamental changes do not come just out of the blue, they “suddenly” emerge as a result of fundamental processes. Therefore, to estimate the probability of any fundamental change, one has to estimate the strength of factors possibly leading to that change. Now, what makes the USD the global reserve currency? The same what keeps any currency running – demand. If people need a currency for transactions, reserves, payments, loans, etc., it will enjoy high value. Otherwise, a low-demand and a barely used currency may not only lose value but fall to non-existence.

Therefore, it is the global demand that keeps the USD on its throne. And why there is global demand for the American currency? First of all, there is an undeniable global presence of the American products of any kind, for which, logically, their American producers demand payments mostly in American currency. Second, to make this currency available to international entities, American and international banks are generous enough to provide loans and all kinds of credit facilities in USD so that the world has enough USDs for their use. Third, the American economy is in fact the first-ever precedent of a truly global economy, also being the biggest and the mightiest. So basically, the US economic machine is perceived as too big to fall, and hence utterly reliable in the long-term by the people and institutions around the world. Combined together, these three main factors make it clear that there is no other currency possibly comparable to the USD. Or is there?

FBS Review

Source: https://fbs.com/analytics/articles/usd-doomsday-looming-25206
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