Could the dollar be on the decline?

 

Russia’s foreign minister Sergei Lavrov on Thursday proposed that countries who are facing sanctions should do business in their currencies. Lavrov also alleged that the days of the US dollar as an international trading currency are numbered.
It is suggested that U.S. President Donald Trump should be excited about this as trading nations must accumulate dollars when trading with each other, which means more US dollars flow out of the United States than flow in, which causes a big current account deficit.

Having the dollar as an international reserve currency creates what is a “monetary seignorage”, which is what the U.S earns from having dollars circulating around the world.

Over the past years there has been efforts to replace the dollar as a reserve currency – China even blamed the dollar’s international role as one of the causes of the financial crisis in 2008. The challenge is that no other currency has stepped forward as a good replacement.

Russia already uses local currencies in trade with other countries that are facing the Trump sanctions, Iran and China, other countries are also thinking of doing the same, said Lavrov.

China has been trading in it’s own currency, the Renminbi.
“I strongly believe that abuse of the role the U.S. dollar plays as an international currency will eventually result in its role being undermined,” Lavrov said.

“A growing number of countries – even those not affected by US sanctions – will more and more stay away from the dollar and will rely on more reliable partners using their (own) currency.”

 

 

Source: Forbes

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