Source: Global Times new media

Recently, the United States announced the imposition of tariffs on all economies including China, causing strong market fluctuations and severely impacting the stability of the global economic order. In response to the US government's disregard for international rules and its unilateral bullying behavior, there is widespread criticism from around the world and within the United States. As the negative effects of the tariff increases continue to expand, some American media outlets and experts have begun to issue warnings: how can the credibility of the US dollar as an international reserve currency be guaranteed if such actions trample on rules? "Experts warn: Tariffs may lead to the loss of the US dollar's reserve currency status," reported Newsweek on August 8th.

In the report, Newsweek mentioned the severe market shocks and chaos caused by the US tariff increases and stated that policy experts warned that the market confusion triggered by the US imposing tariffs on trading partners could threaten the dominant position of the US dollar. The article then focused on the views of three American experts published on the website of Foreign Policy magazine.

The three experts are Edward Fishman, a senior research scholar at Columbia University's Global Energy Policy Center, and two other senior research scholars from the same center, Gautam Jain and Richard Nephew. In their co-authored article, they said that the US dollar as the world reserve currency may not withstand the weaponization of economic power, and the current approach of the US government may "depose" the dollar's status.

Screenshot of the article on Foreign Policy's website

The article first summarized the history of the US dollar being the dominant currency in global trade and finance for over 70 years and analyzed the advantages of the US dollar as the world reserve currency, such as liquidity, widespread use, and security. Previously, although the global market has also experienced some turbulent periods, countries have sought alternatives to the US dollar, but so far, the dominant position of the US dollar has not been shaken.

Subsequently, the article wrote that until April 2nd this year, the US announced high tariffs on almost all trading partners. This led to a sharp drop in US and global stock markets, which was the latest example of the US administration "weaponizing" economic power. This poses the biggest threat yet to the status of the US dollar as a reserve currency. Due to the lack of an immediate alternative, the damage is unlikely to cause fatal consequences immediately, but the risk and possible speed of the dollar's eventual decline are increasing. At least, the actions of the US government will undermine the factors supporting the dominance of the US dollar.

The article analyzed that previous policies of the US government have already harmed the US economy, and the significant increase in tariffs, in addition to disrupting economic stability, will irreversibly damage the credibility of the US as a trading partner, which in turn will weaken demand and use of the US dollar. Economists said that countries prefer to hold reserves of their geopolitical allies' currencies.

Sanctions also prompt related countries to seek other avenues. The maximum pressure exerted by the US government on Iran and the strong measures taken against Venezuela indicate that sanctions already widely implemented during this administration may further escalate. As more and more countries are sanctioned by the US, they will follow Russia's approach after 2018, reducing reliance on the US dollar in cross-border trade and currency reserves.

The article also analyzed other factors undermining the foundation of the US, such as the threat posed by the US government to the rule of law, which also undermines the basis on which the US dollar stands. The US government debt brings additional risks; the Congressional Budget Office predicts that by 2050, the ratio of US federal government debt to GDP will rise from 100% to nearly 150%, forcing countries to bear losses in holding US bonds, which will only scare away future buyers.

The three experts wrote at the end of the article that even if these threats do not completely overturn the status of the US dollar, any weakening of the dollar's status would have significant impacts on both the US and the world. The reserve status of the US dollar has brought great benefits to the US, including lower government bond interest rates and the power to impose strict sanctions. The US dollar has not always been the world reserve currency or the preferred currency for international trade. In the 19th century, the British pound enjoyed this status. After two world wars and decades of political and economic recession, London watched helplessly as the global status of the pound gradually declined. "The decline of the pound and the rise of the US dollar were not inevitable, just as the current potential decline of the US dollar is not inevitable either. The choice determines the reserve currency, not fate."

To assert that the US dollar will lose its reserve currency status might be premature, but the frequent appearance of such warning voices themselves is enough to indicate that the selfish and self-interested actions of the US, imposing tariffs and destabilizing the global economic order, are unpopular and are seriously damaging the credibility of the US and the US dollar.

Reuters also published an article on July 7th, saying that during times of market panic, investors tend to flock to safe US dollars. However, when stock markets recently plunged due to US tariffs, investors fled the US dollar, indicating that the global status of the US dollar may be declining. Many investors and analysts attribute this abnormal phenomenon to the US government. They said that protectionist policies, the disruption of the post-war global economic order, and the continuous increase in US debt have been weakening the attractiveness of the US dollar. They added that if left unchecked, a crisis of confidence in the US dollar could also undermine its status as the world reserve currency. Thierry Wizman, global foreign exchange and interest rate strategist at Macquarie Group in New York, said, "What we see today further indicates that the structure and nature of the relationship between the US dollar and global markets have changed."

Screenshot of Reuters' report

Original source: https://www.toutiao.com/article/7491442883577348619/

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