Wed, 17 Aug 2022

Beijing [China], July 21 (ANI): The global political turmoil has affected emerging economies all across the world, but it is extremely unlikely that the hegemony of the US dollar will be challenged anytime soon as the Chinese yuan has failed to supersede the US currency.

Even though countries like China and India have large foreign exchange reserves and creditworthy sovereign debt, some countries like Sri Lanka and Lebanon are highly indebted due to their economic mismanagement and ongoing political turmoil, an article in Asia Nikkei read.

Kristalina Georgieva, the managing director of the International Monetary Fund, recently warned poor countries of a sovereign debt crisis.

Economic mismanagement and poor governance are the primary causes, the publication said adding that the emerging economies cannot command their fate.

Even though the US dollar dominates the financial system, the U.S. Federal Reserve often ignores the effect of its monetary policy which impacts the rest of the world.

The Federal Reserve System (FED) of the US has increased its policy interest rates despite the highest consumer price inflation in almost 50 years.

As a result, investors from emerging economies or poorer European countries such as Greece or Portugal put their money into U.S. bonds to yield a higher rate of return, the article read.

The article added that it makes the imports of food and fuel costlier, and aggravates the domestic consumer price inflation.

Monetary tightening in the U.S. and other advanced economies, along with rising fuel and commodity prices due to the Russia-Ukraine conflict have jacked up inflation rates.

The economic instability in the world might increase interest and lead to the formation of a rival reserve currency or currencies which will challenge the dominance of the US dollar and bring the instability down.

The conflict between Russia and Ukraine has allowed the yuan to emerge as a potential challenger to the US in trade.

The creation of a new rival currency is not impossible and it would be backed by commodities including gold and oil.

The financial market instability will be reduced in the long run if commodities like oil and gold were priced higher in another currency, it read.

However, the US dollar has sustained its strength over time and its competitors from two major advanced economies, Yen and Euro, have failed to challenge its hegemony.

Meanwhile, China has been promoting its yuan, but it is extremely unlikely that it will overtake the US dollar due to the international community's distrust of its ambitions and the opaque governance of its economy and currency. (ANI)

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