When the dollar will collapse: an overview of the US currency’s position on the world stage
Periods of fluctuation of the dollar against other currencies are a normal market process. And the depreciation of US money can even be in relation to emerging currencies. This is explained by the development of such economies by the positive dynamics of global processes in general. In addition, the better the outlook for emerging economies, the greater the investment demand for local assets. A similar situation is now occurring in Russia, and due to the positive trends in the market a number of experts are waiting for the period when the dollar will fall.
Developing economies are dependent on the USA market, according to Dmitry Babin from BCS World Investments. As soon as there are problems in the USA, other countries get stormed and imbalances appear in their system, which negatively affects all domestic processes. This particularly affects states with large external debts. As a result, investors reduce their investments in emerging economies and the local currency goes down.
Simply put, any crisis that affects the financial-economic sector of the USA affects other countries in one way or another. The dollar, in turn, is one of the shelter currencies used as a tool that protects against market volatility. It is therefore justified that after a period of decline the value of American money goes up sharply.
It should also be taken into account that during crisis processes there are often defaults in payments and defaults precisely in dollars, which leads to a decrease in their supply, while demand, on the contrary, increases.
Only an economy as diversified and strong as that of the USA will be able to supplant the position of the US currency as world market leader. Despite all the development of the Chinese market, it is still too weak for the renminbi to achieve reserve currency status. The fact is that China’s money is highly dependent on raw materials from other countries and exports of various goods. Another positive side of the US economy is its focus on demand and the development of domestic services. This allows it to weather cyclical fluctuations in commodities or a downturn in the world economy with little loss.
So far the most serious competitor for the dollar is the euro. However, there are a number of problems in the EU that are hindering economic strength. One such factor was the disunity within the EU which led to the exit of the UK. Brexit has significantly affected the stability and position of the euro.
Therefore do not expect the dollar to collapse any time soon. It will remain a reserve currency and a tool for international payments for a long time to come.
