By Sergey Manukov
The biggest threat to America from de-dollarization, according to JPMorgan, is not so much the appearance of a competitor’s currency, but the loss of Washington’s main weapon with which it fought economic and financial crises in the past. The dollar helped Western central banks use monetary and fiscal measures during crises, and as the dollar’s leading position weakens, the effectiveness of these measures will decline.
The main danger of de-dollarization for the United States was revealed in an analytical note by a group of economists from one of the largest American banks, led by Marko Kolanovic. The authors of the analysis believe that in the process of de-dollarization, it is unlikely that developing countries will suddenly stop using the dollar and replace it with some other currency. The main risk of the loss of dominance by the dollar is associated with inflation and debt obligations of Western economies.
“Imported (to the West) through trade with the East and South, deflation, outsourcing of the least profitable segments of the economy, the transfer of trade surpluses into US assets, and domestic energy dependence (the “shale” revolution in the US) have historically been key components of the dominance of the US dollar in the global financial system, “Imported deflation and demand for debt has allowed Western central banks to successfully navigate all recent economic crises through a combination of monetary and fiscal measures,” JPMorgan said in a research note.
However, in the future, as world economies separate from each other or enter into direct conflicts against the backdrop of rising energy prices, these measures will lose their effectiveness. Potentially, this will lead to higher inflation and a debt spiral for the West, the authors of the study warn.
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JPMorgan: de-dollarization will go a different way
By Sergey Manukov The biggest threat to America from de-dollarization, according to JPMorgan, is not so much the appearance of a competitor’s currency,…