US bank trouble heralds end of dollar reserve system
On first impression, the dollar looks strong against other currencies and appears to have benefited from the US sanctions imposed Russia and third parties. The Biden administration and US apologists argued that the sanctions against Russia would strengthen the dollar because global investors would 'run to safety', while the US and its allies would exclude Russia from international financial institutions and forbid third parties from accepting rubles.
Although the dollar gained between 5-10% in the first year of the war in Ukraine, the IMF and a number of private financial institutions warned that he greenback was headed for trouble, even before the regional banking crisis.
No serious economist expects anything but a decline in the dollar for two basic reasons.
1. the US economy is slow-growing while its debt is continuing to rise not because money is invested in productive sectors but largely absorbed by the financialization speculative stock market vortex of massive capital concentration, combined with parasitic defense spending; and
2. the US owes $18 trillion to non-US entities and citizens, while its economy is $23 trillion and total public debt close to $32 trillion. The US will remain the the same course, which then forces non-US dollar holders to reassess their own position.
Because of the simultaneous US-led sanctions against Russia and the on-going economic containment on China, Beijing has moved rapidly to employ trade financing, replacing the dollar while reducing dollar purchases. Much of Asia and Eurasia has already shifted to China's RMB which is one of IMF-recognized hard currencies.
After the China-brokered Iran-Saudi rapprochement, the US dollar appears even weaker, considering that Saudi Arabia, which had been a major dollar supporter, announced its intention to switch to other currencies, including RMB. It is still in the interest of most countries, to support dollar stability, but the bleeding of the currency comes because of the structural conditions inside the US public and private sectors, and there is not much the world can do. Continuing to subsidize the dollar is not a realistic strategy for any country, especially when the US political economy is headed for long-term contraction which the currency reflects. All the signs point to trouble that can be contained with band-aid approaches of government bailing out banks, but long-term the picture looks as bad for the US as it did for the British sterling pound in the 1930s when a sharp drop was necessary to stimulate exports.
https://asiatimes.com/2023/03/us-bank-trouble-heralds-end-of-dollar-reserve-system/