Status of the dollar, euro and renminbi in the financial and political sectors
US debt is one of the major issues to the dollar pessimists. Its size is growing bigger over time and became the world’s largest debtor. According to the US Debt Clock, the amount of US national debt on July 8, 2020, is more than 26 trillion dollars (Usdebtclock 2020). It might be possible that the dollar would lose its position anytime if the United States does not take necessary actions (Wheatley 2013).
However, it is hard to find some strong evidence of policies to control consumer behaviour of the United States in the last two decades. Calleo argues that the Americans are habituated to their “exorbitant postwar privileges.” They prefer to export more dollars rather than consume less (Calleo 2009).
Despite of enormous debt, the dollar is attracting the attention of investors. Also, the US dollar is holding the primary position of the foreign exchange reserve for a long time. According to the IMF, the US dollar holds approximately 62% of foreign currency reserves in the world (IMF 2020). Cohen claims that the dollar’s exclusive advantages as a transnational store of value. The United States provides a great set of financial markets, promising liquidity and safety as well as broad network externalities in trade, political ties, massive military reach, and efficient democracy (Cohen 2015).
The US financial sector is one of the main attractions for investors in the world. It offers a great range of financial instruments, such as stocks and bonds, swaps, options, forward and futures contracts, derivatives and so on. It is also open to all. There is a risk, but the reward is also high for the investors. Though some other currency issuer countries also provide almost the same financial instruments, the scale of trading is not is as large as the United States. Rajendran reports that the United States became the core funds processing center in the world (Rajendran 2013). Besides, Oatley claims that most of the countries in the world have direct strong financial ties with the United States that makes the dollar in superior position compare to any currency in the world (Oatley et al. 2013). Moreover, Fields and Vernengo state that the most important feature of a dominant currency is that it offers a secure financial asset that smooths the functioning of financial markets and dollar is ahead among all the currencies in offering that feature (Fields and Vernengo 2013).
The United States is also in the leading position in trade externalities in the world. It is now the second-largest exporting country, just after China (Duffin, 2020). At the same time, US companies dominate more than 70% of the world economy (Starrs 2013). According to Tett, the United States is the primary source of supplying safe liquid assets in the field of trade and commerce at a greater scale in the world (Tett 2014).
Regarding the political factors, the United States has a great deal of political control in the world. The United States has approximately 800 bases in more than 70 countries and territories (Vine 2015). Though there are some incidents where Russia and China showed strong diplomacy over the United States in recent times. For example, Kempe argues that Chinese and Russian involvement in Syria and Afghanistan shaken the US’s global leadership (Kempe 2019). Flowever, these two countries are suffering from some built-in disadvantages, such as aging demographics, slowing growth, Hong Kong protests, and authoritarian structures that would hinder them to be in the global political leadership in the long run (Kempe 2019). Grey also claims that despite some ups and downs, the United States plays a leading leadership role everywhere in the globe with a few exceptions (Grey 2019). This political leadership of the United States helps the dollar to dominate the other currencies in the monetary rivalry.