We are far away from the end of the dollar
🎧💡 #6 Macro & Business Insights
Hi all, and welcome back to The Macro & Business Insights!
My research will cover the follow points:
If the RMB have serious probability to become the new USD currency
An eventual launch of digital currencies could impact the global dominance of the dollar
Why RMB is playing a marginal role in international finance
How Chinese markets rewards could be over the long term
The dollar has functioned as the world’s dominant reserve currency since World War II. Today, central banks hold about 60% of their foreign exchange reserves in dollars.
About half of international trade is invoiced in dollars, and about half of all international loans and global debt securities are denominated in dollars.
Both US and China are working to their digital currency and in my view the time to see realized this project is very long.
Anyway, I think that we'll be to the same ship and really a little bit or nothing will change in terms of USD dominance over the next decades.
RMB is the 6th most active currency for global payments by value, with a share of 1.66 %. By contrast, the U.S. dollar and the euro combined account for 75% of all transactions.
Since 1990s China’s government are considering how to promote the use of China’s currency, the RMB in global trade.
Regarding the Chinese markets, I think, as many others that the markets could growth much more than other over the years and the exposure on China’s markets is still relatively low.
Despite short-term uncertainty, the strategic investment case for Chinese public and private markets remains strong; JP Morgan believe that the rewards can outweigh the risks over the long term.
The U.S. dollar is the world’s dominant reserve currency, among other such currencies including the euro, the yen, the pound, the renminbi (RMB), the Canadian dollar, the Swiss franc, and the Australian dollar.
A reserve currency is a currency held by central banks in significant quantities.
The dollar has functioned as the world’s dominant reserve currency since World War II. Today, central banks hold about 60% of their foreign exchange reserves in dollars.
The RMB plays a marginal role in international finance. According to the Bank for International Settlements (BIS), the RMB is the 8th most traded currency.
China’s central bank is developing a digital currency to try to influence global finance and e-commerce and diversify from U.S. dollar financing.
We once again see the U.S. dollar as rich and a rich dollar implies that nondollar owners of U.S. assets will face a currency headwind.
The Federal Reserve (Fed) is also investigating the launch of a digital U.S. dollar. This is in part an effort to provide digital central bank money as a superior alternative to private sector stablecoins and cryptocurrencies.
A digital USD might be necessary just to maintain the global dominance of the dollar in the face of international competition; this reality could fast-track the development of a digital currency, already set in motion by the arrival of cryptocurrencies.
JP Morgan continue to view the currency as overvalued but have some reservations about forecasting the magnitude and timing of its depreciation.
The U.S. dollar has persisted for seven decades as the world’s dominant reserve currency through a number of major shifts, including the collapse of fixed exchange rates, trade and financial globalization, technological development, and geopolitical changes.
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Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.