{"id":956,"date":"2020-05-20T20:15:48","date_gmt":"2020-05-20T20:15:48","guid":{"rendered":"https:\/\/www.pbmv.com\/blog\/?p=956"},"modified":"2020-05-20T20:15:48","modified_gmt":"2020-05-20T20:15:48","slug":"the-pandemic-is-shaking-the-dollars-supremacy","status":"publish","type":"post","link":"https:\/\/www.pbmv.com\/blog\/?p=956","title":{"rendered":"The Pandemic Is Shaking the Dollar\u2019s Supremacy"},"content":{"rendered":"

by Benjamin J. Cohen<\/a><\/p>\n

After three years of US President Donald Trump abusing America’s dominant position in the global monetary and financial system, his administration’s disastrous response to the COVID-19 pandemic will further erode faith in the dollar. And if the days of America’s “exorbitant privilege” come to an end, so will much else.<\/i>\"shaky_dollar.jpg\"<\/p>\n

With the onset of the COVID-19 crisis, the United States seems to have developed a severe case of what psychologists call dissociative identity disorder: it is simultaneously projecting two distinct personalities.<\/p>\n

On the one hand, the US Federal Reserve has responsibly assumed a leadership role in international finance, as it did during the 2008 global financial crisis. In March, the Fed quickly resurrected a network of bilateral currency-swap arrangements with some 14 foreign central banks, and introduced new repurchase (repo) facilities for an even broader array of monetary authorities, thus ensuring an ample supply of US dollars to meet global liquidity needs. America\u2019s central bank has once again become the world\u2019s lender of last resort.<\/p>\n

On the other hand, America\u2019s president, Donald Trump, has irresponsibly rejected<\/a> the idea that international cooperation is needed to combat the impact of COVID-19 on public health and economic activity. He remains beholden to the principle of \u201cAmerica First,\u201d which means that other governments must look elsewhere for any semblance of leadership. When given the opportunity, the Trump administration has made clear that it will act alone and solely in the \u201cnational interest,\u201d as defined by the president\u2019s own narrow transactional worldview.<\/p>\n

This display of conflicting identities is hardly a sign of American fitness, nor does it augur well for the US dollar, long the world\u2019s dominant currency. The longer America puts two faces forward, the likelier it will be to fall from its long-held position atop the international monetary and financial system. After all, how much longer will international investors and foreign governments trust the money of an increasingly unreliable partner?<\/p>\n

To be sure, there is little risk of a mass exodus from the dollar at the moment. The Fed\u2019s latest actions are a response to higher demand for dollars (rather than a safeguard against panic sales). This suggests that, if anything, the COVID-19 crisis has reaffirmed the greenback\u2019s critical role as the ultimate safe haven.<\/p>\n

Nonetheless, before the pandemic erupted, it was increasingly evident that investors and central banks were looking for alternatives to the \u201cunloved dollar standard<\/a>,\u201d owing to the Trump administration\u2019s unpredictable behavior and toxic brand of xenophobic nationalism. Around the world, there is palpable resentment over Trump\u2019s indiscriminate use of financial sanctions to punish countries such as Iran, as well as any country that does business with it, including US allies. By \u201cweaponizing<\/a>\u201d the dollar\u2019s central role in international settlements, Trump has long been inviting others to return fire.<\/p>\n

China, in particular, has been increasingly proactive in promoting the renminbi as an alternative to the dollar, not least by gradually opening<\/a> its $13 trillion domestic bond market (the world\u2019s second-largest) to foreign institutional investors. Likewise, European countries have launched<\/a> a new mechanism specifically designed to bypass US sanctions on Iranian oil exports.<\/p>\n

With the greenback already slowly bleeding out, the pandemic inevitably will open the wound even wider. That, in turn, will have far-reaching implications for America\u2019s influence in the world and, ultimately, for the US-led post-war international order.<\/p>\n

The greenback\u2019s contribution to US power is well understood. As the issuer of the world\u2019s dominant currency, America has long enjoyed what Val\u00e9ry Giscard d\u2019Estaing, then France\u2019s finance minister, famously called<\/a> an \u201cexorbitant privilege.\u201d As long as foreigners are hungry for dollars, the US can spend whatever it needs to project power around the world, simply by speeding up the printing press. It also can wield influence more directly, such as by making greenbacks available to friends while withholding them from foes.<\/p>\n

But now, Trump\u2019s capricious behavior and pursuit of isolationism threaten to erode US geopolitical power significantly. And once US power is widely seen to be on the wane, the greenback will start to lose some of its appeal, setting in motion a vicious circle: a weaker dollar begets a weaker US, which begets a weaker dollar, and so on.<\/p>\n

Indeed, the pound sterling followed a similar pattern in the twentieth century. Sterling\u2019s loss of international standing was both a cause and an effect of Britain\u2019s slow-motion decline from an imperial power to a middling island power off the coast of continental Europe. The dollar is not immune to the same kind of progressive degeneration.<\/p>\n

The decline of the US and the dollar\u2019s standing would remove one of the key pillars of the post-war liberal order. For many, that order has been synonymous with US geopolitical dominance. But in the absence of US leadership, competing political models are coming to the fore, promoting nationalism, populism, and various stripes of \u201cilliberal democracy.\u201d America\u2019s split personality will affect more than just Americans. Barring a return to form in Washington, DC, the prognosis for the dollar-centric post-war order looks grim.<\/p>\n","protected":false},"excerpt":{"rendered":"

by Benjamin J. Cohen After three years of US President Donald Trump abusing America’s dominant position in the global monetary and financial system, his administration’s disastrous response to the COVID-19 pandemic will further erode faith in the dollar. And if the days of America’s “exorbitant privilege” come to an end, so will much else. With […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-956","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.pbmv.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/956","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.pbmv.com\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.pbmv.com\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.pbmv.com\/blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.pbmv.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=956"}],"version-history":[{"count":2,"href":"https:\/\/www.pbmv.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/956\/revisions"}],"predecessor-version":[{"id":958,"href":"https:\/\/www.pbmv.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/956\/revisions\/958"}],"wp:attachment":[{"href":"https:\/\/www.pbmv.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=956"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.pbmv.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=956"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.pbmv.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=956"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}