Everyone seems to hate the greenback. China recently crowed about its “triumphant” purchase of an LNG cargo, which was paid for in yuan and traded through China’s Shanghai Petroleum & Natural Gas Exchange. And Brazilian President Luiz Inácio Lula da Silva has called for development of a new currency for BRIC countries — Brazil, Russia, India, China and South Africa — to dethrone the dollar.
Such events attract media attention, of course, but they may just turn out to be sideshows. Of greater import are China’s arbitrary punishment of Deloitte for alleged audit failures, the summary arrest of the Mintz Group’s corporate due diligence team in Beijing and the political corruption that has long plagued Brazil.
In essence, the devil may be hated, but for all the chatter about its death, neither the numbers nor the stories support the hype. And while it’s true that the U.S. government does itself no favors by applying economic sanctions indiscriminately, spending profligately and printing money, in the immediate future, there’s no replacing the dollar and the institutions that go along with it.
To be clear, there is a credible threat to dollar supremacy, but that threat comes more from fragmentation than the emergence of a true competitor. For America’s rivals, though, fragmentation is good enough, as it damages the dollar system — but less obvious is that it will also be very costly, reduce information and flexibility, encourage fragility and abet repression.
In addition, while technology may help to displace the dollar over time, decentralized finance has lost much of its luster after the last 12 scandal-ridden months in the crypto world — though “smart contracts” and blockchain-based public ledgers could offer transparent and enforceable transactions in the longer term, without the dollar serving as an intermediary.
However, the biggest failing of this decentralized nirvana is that there’s no one to complain to if —and when — things go wrong. To whom do you appeal for restitution when a contract fails? Until that important question is settled, trusted legal systems, which in practice means the U.S. and the United Kingdom, will remain the easy fallback.
