Many investors are concerned that the US approach to the coronavirus pandemic would deliver a body blow to the dollar, and could worsen what has been a steady deterioration of the role of the greenback as the main reserve currency in the world.
Many Investors are warning that the currency may be harmed by increased US government expenditure in recent months. This includes analysts from billionaire hedge fund investor Ray Dalio and strategists from the Goldman Sachs Group.
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Currently, record-low interest rates in the US are denting the dollar’s attractiveness for the near future. This is amid worries over a possible increase in inflation.
Such concerns are now weighing on the currency, which is 9 % off its peak of the year in July. Its worst monthly performance in over a decade.
Alterations that might influence the dollar’s reserve currency status were happening slowly. In addition, this is according to Deutsche Bank AG ‘s chief foreign strategist. Finally, he added that such worries are increasing recently.
Secretary of the Treasury Steven Mnuchin last month told CNBC that the dollar’s position as the global reserve currency is in the interest of the US. And the government needs to retain it.
Benefits of the Dollar supremacy to the US
The supremacy of the currency endows the US with numerous benefits. Advantages such as an outsize control of the financial environment of the planet. In addition, it grants it the ability to flex its strength internationally. This means the US can bully competitors and take to heel errant international players.
Furthermore, the dollar is by far the reserve currency of preference for central banks worldwide. According to the International Monetary Fund, the dollar’s share of global central bank assets stood at about 62% in the first quarter. This is opposed to about 20% for the euro and 1.9% for the yuan.
US International assets are among the safest assets in the world.
Past doubts regarding the top-dog status of the currency didn’t last long. This includes those that emerged after Standard & Poor’s downgraded its United States credit rating in 2011. It is partially due to the absence of a reliable substitute.
