The dollar was pred-icted to crash again – this time due to the “Afghan factor”. E-arlier, the reason for the alarming forecasts was the instability of the US economy: an increase in the national debt and trillion-dollar cash injecti-ons, which accelerated in-flation. RIA Novosti figu-red out whether the Tali-ban would accelerate the global de-dollarization.
Former Chairman of Goldman Sachs Asset Management and ex-UK Treasury Secretary Jim O’Neill is concerned about the fate of the American currency. Leadership has already been lost, he said. And the status of the world currency is in question. The hasty withdrawal of American troops from Afghanistan only made the situation worse.
The dollar also experienced a serious shock in 1975, when the United States withdrew from Vietnam. But Japan, Germany and China have done everything to prevent significant fluctuations in the exchange rate. Beijing refused to expand the renminbi’s presence in financial markets, both domestically and internationally.
Now the rules of the game are different. The driver of economic growth is shifting towards Asia. It is the PRC that dominates here. Since the middle of the last century, the Chinese have quadrupled their share of global GDP, to nearly 20 percent. The USA has 24.
The International Monetary Fund is revising its SDR basket – Special Drawing Rights that can be exchanged for any currency. If the yuan strengthens, the global financial system will change, said Jim O’Neill. According to the European Central Bank, the share of the American currency in international reser-ves in 2018 fell to 61.7 percent – at least in 20 years. Last year it dropped below 60 – for the first time since 1995.
The US monetary authorities themselves had a hand in this. In the midst of the pandemic, they launched the printing press at full capacity. Trillions have been poured into the economy. Inflation reached 5.4 percent, the maximum in 13 years.
The dynamics of the dollar can now be described as “one step forward, two steps back,” therefore, alarming forecasts appear regularly. And the awkward evacuation from Kabul is just another touch to the big picture.
There are still no direct economic risks from what is happening in Afghanistan, in the opinion of most economists. The impact of this country on the world economy is negligible. And competitors will not be able to seriously squeeze the American currency.
“Japan is a satellite of the United States in the economic and military-political sense. It will not take any independent act-ion. And even China, wh-ose relations with Washin-gton have deteriorated, still depends on the American market. Beijing will not aggravate the situation,” said Vladimir Grigoriev, associate professor Faculty of Economics, RUDN. The dollar will survive through political-military power, technological leadership, and financial manipulation.
One of the main problems is the growth of the money supply. But the US Federal Reserve System has all the leverage. The regulator may switch to a tough policy by the end of the year: it will raise the key rate, and this will strengthen the national currency.
There is already confirmation of this: on August 18, the Fed published the minutes of the committee meeting. The investors found what they were looking for in this document: the printing press will be stopped. The market hopes that this will happen in November.
And in 2022, a rate hike is expected, which will also support the dollar.
The only possible landslide scenario is if the United States gets involved in another large-scale and costly war. But for now, the White House is just avoiding this scenario.
There’s nowhere without a dollar
They have been trying to oust the dollar from the global financial arena for several decades. The share of the euro and the yuan in international transactions is indeed on the rise. But do not forget that the EU and the PRC mainly export, and the USA is their main sales market.
In addition, the eurozone is recovering from the pandemic slower and harder. “Looseness and heterogeneity interfere. In addition to Germany, France, Austria, there are other countries. And if Southern Europe, at least, participates in the common European division of labor, then the Eastern and Baltic states, with the exception of the Czech Republic, are economic ballast, pulling the entire region down. But it should be admitted that the euro is the strongest currency after the dollar, “says Vladimir Grigoriev.
The second after the American economy in the world is the Chinese one. However, the yuan is not very popular in global tra-de, adds Anna Kharchenko, an independent financial advisor.
According to the Intern-ational Monetary Fund, the reserves of the world’s central banks hold the equivalent of $ 11.1 trillion. Of these, in the American currency – about six trillion, in euros – only 2.3.
“The United States has the most diverse and liquid financial market. It attracts capital from all over the world. From here comes investments in those projects in which Europeans and Chinese do not dare to invest,” says Fedor Naumov, managing partner of the investment company PFL Advisors.
“It is the dollar that will always be chosen to save money. Especially in Russia. Since 2014, the ruble has fallen in price against the American currency by two and a half times. The fall since the beginning of the pandemic is about 25 percent,” says Mikhail Kogan, head of analytical research at the Higher School financial management.
However, to minimize the risks, you should not put your eggs in one basket. Diversify, analysts advise. Moreover, the currency will not increase capital. It should be used for calculations, otherwise you will lose more on conversion. And given the high inflation and low interest rates, it is easy to go into negative territory.
Economists recommend channeling free funds into assets: stocks, bonds, real estate. Until the end of the year, the dollar is likely to remain in the range of 73-80 rubles. The exchange rate against the euro is 1.13-1.14. Financial news will continue to influence the market. And, of course, the epidemiological situation in the world.