Tatsiana Ketrar
According to the Institute for global research and social movements, the US Dollar and the unipolar word are doomed since we are nearing the end of neo-liberalism and the revival of the social state.
The experts assume that the global crisis has already been underway for 5 years. Yet, it is expected to last in the near future. The crisis has nearly crashed the neo-liberal economic and political order – the global domination of the USA and its national currency. The experts are looking for alternative strategies for the world amid post-globalization.
What are the near-term prospects? What solutions can be offered? Is the US Dollar really unable to keep functioning as the major global reserve currency? What currency can replace it? Let’s ponder on these questions together with Masterforex-V Academy experts.
Retrospect
It is obvious that today’s world is at the crossroads. No expert would question that. Yet, this is not the first time the world has to make crucial decisions. In this aspect, some retrospect wouldn’t be out of place.
So, history shows that capitalism is subject to crises. Without crises, capitalism just cannot exist and develop. Therefore, crises happen every 20-30 years.
The current global crisis usually compare to the Great Depression (1929-1933). The USA managed to overcome this major crisis thanks to Roosevelt’s New Deal. Some experts call it the 3rd American revolution. It cardinally changed the nature of American capitalism. At that time, it was decided to intensify the governmental control over the national economy and social policy. Roosevelt had to go against the US business elite, thereby introducing a progressive taxation scale and agreeing to a budget deficit. However, let’s focus our attention on the policies that were replaced with the “New Deal”.
It replaced the policy of absolute market/business freedom (low taxes, light governmental regulation, absence of antitrust policies etc). The previous system was based on Adam Smith’s ideas that the state shouldn’t interfere with economy and businesses because the market system is self-regulatory. Therefore it can save itself by coming out of any crisis without any external help.
In the 1970s we saw another major crisis, which came as the result of the “New Deal” (it dominated capitalistic economies over several post-war decades). At that time, the governmental regulation went too far: most economic sectors became loss-makers amid higher bureaucracy, corruption and lack of initiative. In other words, the remedy started turning into a poison. As a result, the solution was found in… Reaganomics and Thatcherism – neo-liberalism (in terms of economy, the market is superior to the state, implying the healing freedom of private business). The focus was shifted from regulating the demand for products and services to stimulating production. It was attended by tax cuts and social program reduction. As a result, we saw several decades of economic growth and prosperity in the world’s leading economies.
However, the ultraliberal economic model crashed in 2008, starting the current global crisis. The gigantic soap bubble finally burst, thus turning the USA form a net lender into a net debtor.
What conclusions can we make? History knows only 2 ways out of economic crises – Keynesianism and neo-liberalism.
Speaking plainly, Keynesianism sees the way out in printing more money and giving them to people, who will spend them on products and services, thereby making the economy work. The purchasing power of lower classes is expanded, which gradually eliminate production crises.
Neo-liberalism offers to expropriate excessive money supply through lowering living standards along with unemployment and bankruptcies.
As we can see, the world is rather predictable and simple to a certain extent.
Near-Term Prospects
Now you will understand why we made this retrospect. The experts from the Institute for global research and social movements concluded that the only way to overcome the current crisis is to go back to Keynesianism.
In the near future we may see the following scenarios:
The USA and its currency will lose their dominant position. This will be the end of the unipolar world. If this is the case, the US Dollar is doomed. As a result we may see several regional currencies instead of the global reserve currency, which is the US Dollar. Ideally, there should be a super-sovereign currency. The only thing that supports the US Dollar is the fact that most currencies around the globe are pegged to the US Dollar.
BRICS members may consolidate their position in the international arena. The BRICS stands for Brazil, Russia, China, India and South Africa. These are leading emerging markets. They oppose neo-liberalism. By the way, the BRICS managed to survive the peak of the crisis without suffering major damage, unlike Western economies. Thanks to governmental regulation, China managed to reorient its economy towards the domestic market fairly quickly.
Anyway, we will probably keep seeing crises every 30 years, along with the interchange of Keynesianism and neo-liberalism since the world hasn’t created any 3rd alternative so far.
As for the fate of the US Dollar, multiple experts participating in various forums and summits have been burying it alive for several decades. However, they still haven’t found any decent alternative because 43% for all international transactions are made in USD. On top of that, some 50% of all sovereign debts are USD-denominated while 61% of central bank reserves worldwide are stored in US dollars. For example, China owns over $1000bn in US T-bonds.
All major commodities, including oil and gold, are traded in dollars as well. Obviously, some day the US Dollar will die as the global reserve currency. However, this is not going to happen in the near future.
US Dollar Will Remain Global Reserve Currency In Mid-Term Perspective
The weight of the US Dollar is determined by the stability of the American economy. This thesis has been an axiom for economists and consumers for several decades. The events seen over the last few weeks seem to have undermined the image of the US Dollar.
The chart below, courtesy of Masterforex-V Academy, reflects the current state of affairs in the market of the US Dollar Index. The index dropped down to the 8-week low amid the rumors the Fed is going to stay devoted to bond purchases.
At the same time, the US Dollar was weakening against the Euro last week. The Fed is still buying bonds, thereby spending on it $85bn a month within the framework of its QE plan.
Masterforex-V Academy and Market Leader offers you to participate in a survey by answering the following question:
Is the US Dollars doomed as the global reserve currency?
Tatsiana Ketrar
