Alexander Babakov, the State Duma’s Deputy Chairman, confirmed last week that BRICS countries are working towards creating a new form of currency. The countries involved are invited to pitch their ideas and objectives at the next summit in South Africa. In addition, oil-rich Saudi Arabia entered a trade alliance with China, Russia, India, Pakistan, and four other Central Asian countries to step further away from reliance on the US dollar.
Additionally, China and France completed an LNG gas trade using the Chinese Yuan and ending the US dollar reliance for transactions. The developments have ruffled feathers in the US, sending fears that the dollar might be on a decline globally.
So, could the US dollar collapse in the coming years make way for a new global currency? Well, technically the US dollar can collapse, but the chances of a fall of a big magnitude remain highly unlikely.
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The US Dollar: Why Do Currencies Fall?
Currencies fall for various reasons and they include:
1. Political or economic disorder
4. A labor market decline
5. Recession, among various other reasons.
- Political or Economic Disorder
The United States has weathered several political and economic disorders since its formation in 1776. The country was on the brink of collapse during the Great Depression in 1929 but successfully weathered the storm in 1939. Not only did it withstand the Great Depression, but it also fought World War II with valor the same year. The will to overcome all odds is in the blood of Americans come hell or high water. Therefore, the US has more chances to overcome political or economic disorder due to this very spirit.
Inflation in the US is high but has not reached hyperinflation yet. The Federal Reserve managed to bring down rates from 8% to 6.5% and are rowing the boat, despite muddy waters. Hyperinflation taking over the country with daily essentials becoming 50 times more expensive might never be a reality.
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The US is technically not at war but funds wars overseas, be it Ukraine, Syria, and Yemen, among other countries. A rogue nation attacking the US since 9/11 is nil, and the country is not at war today. The US is more equipped to handle and thwart terrorist attacks today than it was ever before.
4. Labor Market Decline
The job markets remain robust despite several leading tech firms firing thousands of employees since 2020. Businesses are thriving, and jobs for small and big-level employees remain open for hire. Though the job markets remain on shaky grounds, it managed to sustain and grow, even in muddy conditions.
While talks of a recession are growing louder, a recession has technically not hit the markets yet. Both the stock and cryptocurrency markets are doing favorably well in 2023 and generating decent returns for investors. However, a recession cannot be ruled out, as there’s pressure on the financial markets.
Considering all the above points, the US stands in a favorable position with the only recession being its weak point. Moreover, since a recession is yet to arrive (or might not arrive), the weak point can be removed for now. In conclusion, the other sore spots can be worked upon and brought under control in the coming years.
So Will The US Dollar Collapse?
BRICS is yet to finalize a new currency in the upcoming summit in South Africa. The problem with BRICS nations is that decisions are not made swiftly and quickly due to various factors. Asian countries working with each other is not as easy as said.
The factors involve India’s broken relations with China and vice-versa. India and China have always been on the wrong ends, and the bitter political disputes could only make things worse.
Technically, the US dollar is backed as the default global reserve currency with billions worth of trades being executed each day. The US dollar has a special status globally and is considered one of the safest currencies. The United States is still the biggest economy in the world with an annual GDP of around $23 trillion.
Even if the US falters, it always has and will find a way to remain at the top and be an undisputed global leader. The Great Depression is one big example of how nothing is impossible for Americans to succeed in troubled times.