The US dollar has become one of the most closely watched currencies in the world. With factors such as de-dollarization and viral movements selling off the US dollar, it is clear that the US dollar has now attracted many hostile enemies.
With alliances like BRICS and ASEAN taking the lead in moving away from the US dollar by promoting the use of local currencies, will they ever succeed in their efforts to eliminate the US dollar? It seems unlikely.
Why the US Dollar Can't Collapse
Constant price fluctuations and consumer confidence
For a currency to collapse, it needs constant price volatility. Above all, it collapses when consumer confidence in that currency is completely lost.
In simpler terms, currencies are severely affected when they record a significant decline in their utility or store-of-value metrics. These developments can be triggered for a variety of reasons, primarily political and economic instability.
While it is true that the US dollar is now approaching the acceptance of such elements (the de-dollarization movement), it would take much more than that to destroy a phenomenon like the USD in a world that is completely dependent on it.
Reason #1: Popularity and Demand of USD
One of the main reasons why the US dollar is virtually indestructible is its enduring popularity and demand. The demand for the dollar is high, driven largely by its global status as the leading economic leader.
While currencies like the Swiss Franc and the Kuwaiti Dinar tend to appreciate against the US dollar, the fact that the USD is dominant and used globally for many transactions makes it unassailable and irreplaceable in the long run.
Reason #2: It is a reserve currency
The US dollar accounts for 58% of global currency reserves, making it a key component of the world economic structure. While the US dollar may continue to attract capable adversaries given its strong foothold in the global financial space, it will ultimately be difficult to deflect it.
“What currency do you want to own when global equity markets start to fall and the global economy is trending toward recession? You want to position yourself in the US dollar because that’s historically how the exchange rate reacts to events like that,” James Lord, MG’s head of emerging markets FX strategy, said in a recent podcast.
