The US dollar now has new competitors and foes, which continue to gnaw at it. The American dollar has long had foes, but never to an extent that can challenge its original positioning. With the rise of the multipolar concept around the world, the narrative has changed, which means that the USD’s crown as a leading global currency can be snatched and taken away. But is it that easy?
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Why Can the US Dollar Not Be Dethroned?
Financial giant Morgan Stanley has come up with its own set of opinions, a viewpoint that shares how the US dollar’s supremacy is unmatched. Per Morgan Stanley analysts, the USD cannot be dethroned due to its positioning as the leading reserve currency in the world.
“Which currency would you want to own when global stock markets start to fall. And the global economy tends to head into recession? You want to be positioning in US dollars because that has historically been the exchange rate reaction to those kinds of events.” James Lord, the bank’s head of FX strategy for emerging markets, said this in a podcast last week.
The bank was quick to disperse rumors concerning Yuan overtaking the US dollar. Lord shared that the Chinese currency is not liquid enough to challenge the vast expanse of the USD that it has carved on its own.
“It seems unlikely to challenge the US dollar meaningfully anytime soon. To do so, we think China would need to relax control of its currency and open its capital account. It doesn’t seem likely that Beijing will want to do this anytime soon,” Lord said.
US Debt Won’t Affect the Dollar’s Dominance
Speaking further on the topic of US dollar dominance, Lord reiterated how the inflating US debt metrics will pose no harm to the USD.
The analyst laid emphasis on the fiscal expansion plans that the US may undertake in the coming months to fight the inflation. He shared how the nation’s economists are also ready to put in work to fight the alarming debt signals, which may turn the tables around for good.
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“I understand the concern, but for the foreseeable future, there’s not much to it,” Zezas said. “Depending on the election outcome in the US, there’s some fiscal expansion on the table. But it’s not egregious in our view, and unless we think the Fed can’t fight inflation. Our economists definitely think they can then it’s hard to see a channel toward the dollar becoming an unstable currency.”