Is Hormuz the US dollar’s Suez?
The article discusses the potential decline of the US dollar as a global reserve currency, drawing parallels to the British pound's fall after the Suez Crisis. It highlights the current economic challenges facing the US, including a high debt-to-GDP ratio and a widening current account deficit. Despite these issues, the dollar remains dominant in international trade, though the global monetary system is evolving towards a multipolar landscape.
- ▪The US dollar currently accounts for about three-fifths of all foreign exchange reserves.
- ▪China is increasingly pricing energy contracts in renminbi, indicating a shift in global currency dynamics.
- ▪The Euro Area is hesitant to issue union-wide safe assets, which limits the euro's potential as a reserve currency.
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In the dog days of summer 70 years ago, Gamal Abdel Nasser announced the nationalization of the Suez Canal. The move triggered the invasion of Egypt by a joint force of British, French and Israeli troops. Although the military operation was a success, it was a diplomatic disaster. Led by the United States, the international community condemned the war, eventually forcing a humiliating withdrawal. This subsequent financial fallout was devastating for the British pound. Having entered the crisis with a significant debt burden and fragile external balances, the loss of confidence in the sterling led to heavy selloffs. Already relegated to a secondary reserve currency by then, the crisis was effectively the final nail in the coffin of the pound’s status as a global currency.
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Excerpt limited to ~120 words for fair-use compliance. The full article is at Asia Times.
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