Daily Times

 World trade, bond market depth and stock market capitalization all support the US dollar as the world reserve currency.

The US is the world’s largest goods importer, making it a worldwide trade powerhouse. The United States has been running a deficit for almost 40 years, so the present trajectory comes as no surprise.

For example, the trade deficit with China is $383 billion. Meanwhile, the entire goods trade deficit is nearly $1.2 trillion, and it is expected to grow by 9% in 2022. It has a global deficit with 30 countries. Why would China want to upset their most addictive consuming customer?

The United States dollar is the world’s main reserve currency, accounting for around 64% of all official foreign exchange reserves. The euro comes in second with 20%. British pounds (5%), Japanese yen (4%), Canadian dollars (2%), and Australian dollars (2%), are also maintained as foreign reserves. The remaining 3% is made up of Swiss francs and other currencies. The RMB is not yet a significant participant, but it may be in the future. Nearly 84% of worldwide FX activity is traded in US dollars.

Because of the enormous US economy and its proportion of world trade, as well as the causes outlined above, all major countries must peg their currency to a basket of currencies in which the dollar keeps a considerable fraction for much-needed stability. This applies to INR, RMB and Saudi Riyal. The day that BRICs countries begin stating their reserves in RMB, Rupee, Ruble, Real, their currency, dollar must have been dethroned. They simply cannot!

Forget the rule of law, the Fed’s ability to create dollars, the oil gold and world commodities priced in dollars, and strategic control of sea lanes and choke points; the other major reason for dollar hegemony is trade volume, as well as the depth and stability of credit markets and the size, stability, and liquidity of the country’s financial markets; these are the major underlying factors determining the resilience of the dollar as a reserve currency.

The stock markets in the United States are at the centre of wealth generation; they account for 58% of worldwide equity market capitalisation.

The United States prides itself to be a land of opportunities and expanding riches. Although China is now the world’s largest economy in terms of purchasing power, the United States financial markets continue to reign supreme. China’s markets, at roughly 5.6% pale in comparison.

Every wealthy and famous billionaire invests in US stocks and bonds. Whereelse can they find profundity? From Lvmh’s Arnaud to Tesla’s Musk, all their fortunes are measured in dollars.

Forbes wealthiest list is in US dollars. There is no Ruble, RMB, Rupee, or Real in sight. Even Crypto is priced in dollars and the moment crypto makes a new high the sellers all want to become dollar billionaires, not crypto billionaires. One of the inherent weaknesses is why crypto that hopes to replace dollar is priced in dollars. The reason dollar has a bank of last resort.

The writer is CEO/MD at GRAM.