U.S. Dollars in the Hands of America’s Competitors

The Dollar-defending strategy in the past years might have announced the beginning of a historical decay. This isn’t a certain fact at all. It is only a hypothesis or a possibility. However, beyond any doubt, this possibility has to be taken into consideration.

The new thing in the picture is the combination between the appearance of an alternative to the dollar and the use of certain fabulous currency reserves by several new players in the world market, especially the Asian countries, some of which are pretty determined to take the dollar out.

Since it is the main part of the world’s currency reserves, the dollar is now part of the reserves of many countries that are strongly coming from behind in the international competition, even if they are successful countries or countries with important natural resources that, due to the great overplus in their external commerce, have taken a lot of the U.S. Dollars outside the U.S. China, India, Russia, the Islamic or Latin-American oil exporting countries are just a few of the most significant examples. These countries continue to accumulate currency reserves because they use the money from the massive exports to systematically buy foreign currency to allow them to maintain their national currencies at competitive levels. China, for example, the currency reserves of which reach 1,100 billion US Dollars, keeps more than 70% of them in USD.

The dollar’s fate has come to depend on the movements dictated by the economical and political interests of others, of enemies or competitors of the United States. As a reply to the American pressures, Iran has decided to change to Euro the dollar component of its reserves. It also decided to only use Euros for the oil transactions. Latin America took a similar decision as far as the reserves are concerned simply because it cannot use Euros to sell oil in the U.S. The oil-exporting countries in the Golf are looking for a monetary union formula to reduce the present exclusive dependence on the US Dollar. China and Russia are frequently threatening to exchange part of their reserves to Euros during their strategic games with the United States.

Given the situation, decisions taken in Washington regarding a powerful or a weak dollar could simply be annihilated by political or economical measures from other capitals of the world that control more dollars than the United States. This is simply because, due to the six decades of fabulous international expansion of the U.S. dollar, there are more dollars outside than in the USA. It is a tragic irony.

This situation comes from the privileges that came with the international launch of the dollars six decades ago: being an internationally accepted payment method. Due to these privileges, the American economy was and still is the only one that can finance the external deficits with their own currency. Just that the international system itself vindicated these deficits because it was the only way for the dollars to get abroad as a mean of payment available for the others.

In time, risks get enormous, because, step by step, the others can get to have more of one’s currency and to have a greater power to manipulate!