In 1971, President Richard Nixon ended the Bretton Woods system, unpegging the dollar from gold. But with the dollar already deeply entrenched in the economies of dozens of other nations and the United States continuing to thrive, the dollar remained dominant, even if other countries were no longer forced to fix their currencies to it. The US also soon adopted a new policy to strengthen the dollar further, reaching an agreement with Saudi Arabia to trade all oil in US dollars. This agreement reinforced a constant demand for American currency. In recent decades, however, the ubiq- uity of the US dollar in global trade has begun to flag. Today, about 60 percent of foreign exchange reserves maintained by the world’s central
banks are held in US dollars — down from about 70 percent in 2000. US adversaries like Russia and China are also actively working to dethrone King Dollar. The Chinese-led BRICS coalition (Brazil, Russia, India, China, and South Africa) announced earlier this year that they are in the process of creating a new medium for payments that is pegged to a basket of their currencies rather than the dollar. In total, the BRICS nations account for one quarter of the world’s economy and are a direct rival to the G7 bloc of Western powers. Other countries are also moving away from the dollar amid aggressive financial moves by China. In Febru- ary, Iraq’s central bank announced it would conduct trade with China in yuan for the first time. Last Decem-
ber, China and Saudi Arabia carried out their first transaction in yuan. This trend has been accelerated by Russia’s invasion of Ukraine, which led to severe US-led sanctions. As a result, Moscow has frantically worked to reduce its reliance on the US dollar and other western currencies — a goal in which China has been eager to assist. Last fall, China announced a new contract with Russian gas producer Gazprom that would be executed in half rubles and half yuan. Previous contracts had been denom- inated in euros or dollars. China’s defeat of the dollar is often dismissed as a fantasy that America could easily guard itself against. Yet ill-advised economic policies from the Biden administration and congressio- nal Democrats could give Beijing the opportunity it has been waiting for. Since 2008, the US economy has relied on zero or near-zero percent interest rates to stimulate growth. Easy access to capital and a boom in technology and finance led to a steady recovery from the financial crisis that was supercharged with the election of Donald Trump in 2016. However, the COVID-19 pandemic sent the economy tumbling in 2019 and 2020, while also forcing the government to spend gargan- tuan sums of money. According to a NASDAQ report, the US printed a staggering $13 trillion in COVID-re- lated economic relief — almost three times the total amount spent on World War II. Instead of enacting policies that would return the country to its
Foreign Exchange Reserves by Currency Q4 2022
AUD (1.96%)
CHF (0.23%)
CAD (2.37%)
CNY (2.69%)
Other Currencies (3.45%)
USD (58.38%)
EUR (20.48%)
GBP (4.94%)
JPY (5.50%)
Source: International Monetary Fund COFER
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36 • AMAC Magazine
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