US Dollar 'Losing Soft Power' as 'New Economic Order' Ushered in
CC0 / Pixabay/qimono /
Subscribe
The negative effects of the US-led sanctions, underpinned by the greenback's historic pre-eminence, have boomeranged on Western economies, hindering foreign trade, crippling economic growth and pushing the rest of the world to look for alternatives, professor Sergio Rossi told Sputnik.
US Treasury chief Janet Yellen recently admitted that unrelenting US sanctions are pushing countries to look for alternatives to the American currency. The sanctions do have a "boomerang effect," as both the US and several European nations are suffering from these sanctions much more than Russia, Rossi, who is a professor of Macroeconomics and Monetary Economics at the University of Fribourg, Switzerland, said.
"Indeed, these negative effects hinder foreign trade and economic growth of all Western countries, since the general price level on the market for produced goods and services has been increasing beyond the traditional inflation target of 2 per cent, inducing the major central banks to increase their policy rates of interest in an attempt to curb these inflationary pressures, which have reduced economic growth dramatically for a number of firms and wage-earners in Western countries. Hence, the US dollar loses its 'soft power' and this increases the financial fragility of many banks across these countries, where an increasing number of bank failures are occurring, as the Credit Suisse case illustrates clearly," Rossi said.
More and more countries, from Brazil to Southeast Asian nations, are calling for trade to be carried out in other currencies besides the US dollar – in words and deeds alike. The dollar's share in central banks' foreign exchange reserves has dropped from more than 70% in 1999 to some 58% in the final quarter of last year, signalling that its hegemony is dwindling.
"We are in the middle of a transition to a new economic order, as a multipolar system with regard to trade agreements and international clearing systems is being set up with a view to get rid of the US dollar hegemony. The world economy is thus becoming less unbalanced with regard to the hegemony of the US economy on both monetary and financial grounds," Rossi believes.
"...The transition to such a new international economic order may be troublesome and costly in terms of uncertainty and job losses over the short run, but could give rise to a much better global economy, provided that all member countries understand the need to establish a new monetary order at [the] international level, averting that any countries issuing a currency used as a reference currency give without taking, lend without borrowing and acquire without paying – a situation that has been characterizing the United States since the Bretton Woods agreements have been signed in July 1944," Rossi said.
