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Senators and regulators explain why the $60 billion collapse of a major cryptocurrency is not the industry's Bear Stearns moment
According to Megan Greene, principal economist at the Kroll Institute, the 'King Dollar' is not at risk of losing its worldwide market domination due to its trading power.
Greene said in a Financial Times op-ed on Tuesday that the US dollar, the most extensively used currency in global financial markets, commerce, and central bank reserves, will not lose its standing, despite the fact that its supremacy has been questioned due to Russian sanctions.
Many of the Western sanctions on Russia are effective because they require access to the US dollar, but some analysts worry that weaponizing the greenback in this way risks eroding its supremacy and allowing smaller currencies like the yuan to gain a larger role.
Greene, a senior scholar at Harvard Kennedy School who is noted for her early prediction of the eurozone crisis in 2008, commented, "There is a certain logic to that, but the truth is the dollar can't be ignored, and it will remain the dominating currency in trading and transactions."
Central banks will continue to diversify their reserves, but the reserve currency will not be jeopardized, she said. She pointed out that the dollar's proportion in foreign exchange reserves has fallen by 12% in the last two decades, but it still accounts for about three times that of the euro, which is in second position.
While some dollars have gone into the renminbi, the rest has gone into smaller economies' currencies, including as Australia, Canada, Singapore, South Korea, and Sweden, according to Greene. China is the only one of these countries that hasn't placed sanctions on Russia.
She stated, "It's difficult to envisage future geopolitical confrontations including a substantial rift among these friends." "Shifting funds into the loonie, won, or krona is unlikely to provide a path around financial penalties, given the size of those economies. In any case, all of these currencies are ultimately protected by US dollar exchange lines in the event of an emergency."
According to Credit Suisse strategist Zoltan Pozsar, the Ukraine conflict, which has triggered a global commodities crisis, would damage the Eurodollar system and pave the way for a much stronger yuan.
According to Greene, though, there are significant impediments to that idea.
In order to avoid breaking sanctions, two of China's top state-owned banks have blocked funding for purchases of Russian commodities, particularly in dollars.
"Transacting solely in roubles and renminbi would be tough for China and Russia," Greene added. "Outside of China, the Chinese yuan is not convertible. What would China do if they had roubles?"
Full convertibility and an open capital account are required for the renminbi to become a worldwide reserve currency. Furthermore, she continued, finding the money to buy hordes of Russian items without jeopardizing the value of China's outstanding US debt would be difficult.
"It could also print money," Greene noted, "but it would cause inflation at a time when the Communist party is trying to stabilize economic growth."
According to the economist, China also appears dedicated to creating an offshore dollar bond market to make it easier for Chinese enterprises to borrow in dollars.
Cryptocurrencies, like the US currency, aren't a logical successor.
She claims that using digital wallets is "inconvenient" and that they "can't be used to buy groceries or pay taxes, let alone a truck load of oil." "Stablecoins, on the other hand, could really help King Dollar."
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