In The Dollar We Trust?
Historian Yuval Noah Harari once said, “Money is the most successful story ever told, much more successful than any religious story”. Offer Osama Bin Laden a copy of the bible — the embodiment of Western religiosity — and he will dismiss it with every fiber of his being. But offer him a suitcase stuffed with the West’s currencies — freshly printed US Dollars and Pound Sterlings—and it is unlikely he will say “I only accept Riyals, thank you very much.”
“Not everybody believes in the same God,” — says Yuval Harari, “…but almost everybody will believe in the same money”.
Given Harari’s logic, The US Dollar is the most successful narrative in the world today. According to one estimate, the greenback is currently responsible for 88% of all foreign exchange transactions, 54% of international trade invoices, and 58% of global foreign exchange reserves. Compare this to the Euro’s much lower figures of 31%, 30% and 20% respectively. Also bear in mind that the European Union is a constellation of 27 countries containing some 750 million souls. America is one country with a much lower population of 330 million.
Ever since World War II, the narrative of the US dollar as the supreme leader of all currencies has been trusted by billions of people and the largest institutions across the globe. But this narrative is starting to show some plot holes.
An Inconvenient Story
The ‘dollar supremacy’ narrative has increasingly become a cumbersome story to adhere to for many countries. What was once a very convenient story has come under plenty of doubt and scrutiny. Regardless of the current dominance of the greenback, there is a strong trend of de-dollarization amongst many nations across the globe.
The ASEAN summit held in Indonesia early last year strengthened the initiative between the 10 ASEAN members to settle their intra-regional transactions using their local respective currencies. The end game is for the ASEAN region to decrease their dependency towards the increasingly pricier dollar. Following the onslaught of sanctions from the United States with regards the invasion of Ukraine, Russia has aggressively taken steps de-dollarize their economy from what Putin recently called “toxic” currencies. The Kremlin has boasted a 50% reduction in receiving such ‘toxic’ currencies in their export receipts last year. China — the ultimate economic challenger towards the US — is not shy about their efforts to internationalize the Renminbi; partly as an effort for global supremacy, no doubt, but also as a means to avoid further sanctions from the US. In March of 2024, the share of international settlements done by the China in their home currency surpassed settlements in US Dollars for the very first time in history.
Both Russia and China’s initiatives are in line with the BRICS’s initiative to settle their international transactions without piggybacking on the greenback. The BRICS nations initially consisted of Brazil, Russia, India, China and South Africa; but the gang has recently added Iran, Egypt, Ethiopia and the UAE to the mix. With the ASEAN and BRICS nations actively committing on their de-dollarization initiatives, the supremacy of the greenback may someday be seriously challenged by a more compelling monetary narrative.
Empty Promissory Notes
This retraction from the dollar is not a new phenomenon. Even close US allies such as Australia, France and Japan have made past agreements with other nations to trade in non-US dollar currencies as a means to increase their independence from the greenback. But America’s recent political uncertainties may once again reignite this de-dollarization fever.
Trump has expressed his concerns over the strong dollar and has vowed to depress its value in support of US manufacturers and exporters. His running mate and Vice-Presidential candidate JD Vance is also a proponent of a weaker dollar as a populist policy for supporting the local manufacturing industry. The problem with such rhetoric is that it is unclear how a potential President and Vice President could reliably deliver such promises. The most direct and powerful gatekeeper of the greenback’s value is the Federal Reserve, who is on paper supposed to be independent from the President, the Vice President, or anyone else in the executive branch of government.
The very reason why the dollar has appreciated to such heights is precisely due to the Federal Reserve’s aggressive contractionary monetary policies over the past two and a half years that catapulted US interest rates to record highs.
To the extent that Trump can keep his promise of devaluing the dollar, he would only be able to do so indirectly through political machinations and persuasions to the higher-ups at the Fed. Outside of this route, Trump’s promise of devaluing the dollar may be as realistic as his previous promise to ‘build the wall’ and ‘make Mexico pay for it’.
Along with the questionable promises, Trump and Vance’s populist policies of high tariffs and high tax cuts may in fact further strengthen the dollar instead of taming it, as reported by the Financial Times. High tariffs on imported goods introduces inflation, which further incentivizes the Fed to increase rates even further and make the greenback even more expensive. Cutting taxes increases the cash disposals of companies and individuals, incentivizing more spending and investment, starting another inflationary cycle upwards, causing the Fed to increase rates further, and making the greenback more expensive. More directly, large scale tax cuts (as promised by Trump) inevitably boost investor confidence towards the economy and increase global demand for the dollar, once again providing support for a stronger greenback.
No Longer Making Cents
The dollar is very pricey once again. The cost of being listed in Uncle Sam’s ‘naughty list’ is a plethora of hefty sanctions. The promises of the soon-to-be president on the future state of the dollar is at best — unclear. Put on top of this the 32 trillion in unserviceable debt the country has, their continued annual deficit, and their insatiable habit of printing money, and one wonders — why is there such continued trust in the dollar? The unsatisfactory answer may simply be — irrational momentum.
Fortunately, this irrationality is being questioned by many nations. Many are beginning to realize that the unquestioned supremacy of the dollar is simply that — a story — nothing more than a narrative that can be dispensed with when it no longer serves you. The narrative of the dollar is currently being challenged by other monetary narratives — whether it be the adoption of cryptocurrencies or any other traditional non-US fiats fit enough to replace the dollar.
Perhaps in the future the dollar will be replaced by a global, singular, digitized currency that we all would collectively adhere to. A currency separate from the political ideologies of any one dominant nation. A single currency that would allow for a world free of the complexities of exchange rates and currency wars. Sounds like nonsense indeed. But that is precisely the essence of stories. It does not have to make sense to be believed.
