The position of the US dollar as the main world currency is based on a lack of other options, because at this stage, there is simply nothing on the table to replace it with. However, this situation may change in the future.
“The high confidence in the dollar stems from lack of choice. If another currency had a chance, the dollar would have been replaced,” believes Yevgeny Nadorshin, chief economist at PF Capital.
The expert shared his opinion at the Money and the City online conference. Hypothetically, we could consider the Chinese yuan and, perhaps, even the Indian rupee that could potentially edge the dollar out of its position as the main currency, Nadorshin says.
However, these counties raise a lot of economic concerns – for example, the Indian Prime Minister’s attempts to eliminate corruption have led to problems in the national economy. China’s debt burden also needs to be kept in mind, he added.
Furthermore, it may take decades rather than years for the dollar to lose ground as a reserve currency.
“The inertia of human thinking will keep the dollar as the benchmark currency on the global scale longer. First it will cease to be a full-fledged reserve currency, and only after that people will gradually stop measuring everything in dollars,” says Yevgeny Nadorshin.
There is no alternative to the dollar yet, and confidence in this currency is largely due to the confidence in the American state, which is capable of defending its interests and attracting the best workforce, says Sergei Romanchuk, head of FX&MM at Metallinvestbank, member of the Moscow FX Joint Standing Committee.
“America is where Silicon Valley is, and American regulators can dictate their will to companies around the world. Until confidence in the American dollar is ousted by confidence in some other system, global finance will continue to use the dollar,” the expert said.
According to him, the Chinese and Indian regimes cannot compare with the United States in terms of global influence, much less by their currencies’ potential to be used as reserve for a long time.
“If this situation can change, ever, it is unlikely to do so for another 10–20 years,” Sergei Romanchuk concluded.
As a reference, the Russian Central Bank is augmenting the share of Chinese assets in its foreign reserves.