Is a world of trade and finance beyond the US dollar thinkable? Not really. The greenback is not expected to lose its status as the world’s reserve currency soon, nor even see a significant decline in its dominance in trade and finance, though experts warn some of the aggressive policies of President Trump could threaten the superiority status of the currency.
Can Crypto Surpass Dollar?
The world’s payment landscape is fast-changing as there is record growth in digital payment systems. Unquestionably, the dollar remains the most widely used currency, and its charisma attracts investors and businesses alike. Its usage in forex deals, international banking and trade invoicing and debt issuance stands at the top today.
People once believed that digital currencies may reduce reliance on dollars. Thoughts on cryptocurrencies (including Bitcoin) replacing the dollar as the world’s reserve currency were on the rise.
The world’s payment landscape is fast-changing as there is record growth in digital payment systems. Unquestionably, the dollar remains the most widely used currency. |
But, technically, most trading in decentralised finance involves trades using stablecoins, which link their value to the dollar. In fact, nearly the majority of stablecoin market capitalization is linked to the dollar, and crypto-assets are de facto traded in dollars.
The Strengthening Dollar
Therefore, increased trading in digital currencies will only strengthen the dominant role of the dollar. The dollar has the highest share in foreign exchange transactions, and according to the Bank for International Settlements, the dollar remains by far the most commonly traded currency.
Data shows the dollar index, which measures the dollar against a basket of currencies, has declined to 104.3. It’s indeed a positive sign for emerging markets, including India.
FIIs may turn bullish on Indian markets, and stop leading the determined bear hammering on Indian markets if the dollar continues its declining trend, and will lead the market to a rally. Further, RBI’s decision to inject Rs 1.9 lack crore liquidity into the banking system is a positive micro news for banks and NBFCs, and the fall in crude prices is a macro positive news for India.
If Mr. Trump continues to create trade war fears, it will dampen the US economy itself, and a new demon of extreme inflation may take birth, and people will struggle with prices, and the resultant skyrocketing cost of living. | File Pic
Trump’s Tariff War
If Mr. Trump continues to create trade war fears, it will dampen the US economy itself, and a new demon of extreme inflation may take birth, and people will struggle with prices, and the resultant skyrocketing cost of living. Job creation will become a nightmare for the Trump administration.
Current uncertainty on the actual impact of reciprocal tariffs warn investors to remain cautious, and follow a wait-and-see approach to India’s policies or retaliation or a new amicable trade deal. Tariffs are an important source of revenue. But, President Trump is throwing the baby out with the bathwater.
