According to Jeffrey Sachs, within the next decade, the US dollar will play a much less dominant role than it does today. The noted economist cites the use of the U.S. dollar as a political weapon by Washington, the introduction of currencies such as the digital renminbi, and the shrinking share of the U.S. in the global economy as factors in the decline of the U.S. dollar’s status.
The shrinking U.S. share of the global economy affects the dollar
Jeffrey Sachs, economist and director of the Center for Sustainable Development at Columbia University, predicts that the role of the U.S. dollar will naturally diminish as the U.S. share of the global economy becomes smaller and payments in other currencies take hold.
Sachs, in an online session at the latest Annual Columbia China Summit on Friday, noted that the international payments system is currently dollar-based, with up to 60% of foreign trade settlements made in US fiat and about half of currency reserves He pointed out that the dollar is the main source of foreign currency reserves in the world.
At the same time, the U.S. share in the world economy is about 15% on a purchasing basis. In other words, the role of the dollar is much larger than the role of the U.S. economy, Sachs explains. He described the greenback’s role as “kind of historical” and a reflection of U.S. power in the 20th century.
Jeffrey Sachs quoted a report from China’s Xinhua news agency, noting that many countries no longer want to keep their money in dollars as the US has confiscated the foreign reserves of Russia, Venezuela, and Iran and turned their currencies into political weapons. He elaborated:
They do not trust the U.S. and believe that the U.S. will confiscate their currency, especially if there is some foreign policy disagreement with the U.S.
The role of currencies like the yuan, rupee, and ruble will increase
in the future.
The economist further states that the current role of the U.S. currency is largely due to the dollar-based commercial banking system, as payments are usually settled through commercial banks. However, Sachs believes that in the future, payments will be settled through central bank digital currencies (CBDC
The digital version of the renminbi issued by the People’s Bank of China, the digital yuan (e-CNY), is currently being piloted at the domestic retail level, but Sachs believes it will eventually become an international payment system for cross-border payments.
Russia, China, Saudi Arabia, India, and South Africa do not want to use a US dollar-based banking system and are looking for alternative payments, which is understandable, according to Sachs. Going forward, he concluded, the role of the U.S. dollar will diminish and the role of yuan, rupee, ruble, and other currencies will increase.
Jeffrey Sachs is known for his work as an economic advisor to governments from Latin America to Eastern Europe, helping them transition to market economies. two years ago, Sachs criticized bitcoin as having “no social value,” but the benefits of using digital currencies, such as increased transaction efficiency acknowledged.
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