Dollar rulers are getting weaker, Russia and China pursued this strategy

Posted on 18th Aug 2020 by rohit kumar

The US currency dollar is identified as a global currency. Dollars and Euros are very popular and accepted in international trade. The foreign exchange reserves in central banks around the world are 64 percent of US dollars. In such a situation, the dollar itself becomes a global currency. The dollar is a global currency, it is a symbol of its strength and strength of the American economy.

 

According to the International Standards Organization list, there are 185 currencies worldwide. However, most of these currencies are used within their country. The extent to which any currency is prevalent around the world depends on the economy and power of that country.

 

The second powerful currency in the world is the euro, which is 19.9 percent in the foreign exchange reserves of central banks around the world. The strengthening and acceptance of the dollar reflects the strength of the American economy. 65 percent of the total dollar is used outside the US.

 

Dollar is involved in 85% of trade worldwide. 39 percent of loans worldwide are given in dollars. Therefore foreign banks need dollars in international trade.

 

Russia and China are coming together to reduce their dependence on the dollar. Some experts say that this may lead to a 'financial alliance' between the two countries.

 

Why Dollar Global Currency?

The current strengthening of the dollar began in 1944 following the Bretton Woods Agreement. Before that, most countries considered gold only as a better standard. The governments of those countries used to promise that they would fix their currency based on the value of gold demand.

 

The developed countries of the world were found in Bretton Woods of New Hampshire and they fixed the exchange rate of all currencies against the US dollar. At that time, America had the world's largest gold reserves. This agreement also allowed other countries to support their currency instead of gold.

 

In the early 1970s, many countries started demanding gold for the dollar, as they needed to fight inflation. At that time President Nixon instead of allowing Fort Knox to liquidate all its reserves, separated the dollar from gold.

 

By then, the dollar had become the world's most secure currency.

 

China and Russia strategy

According to the Asia Nikkei Review report, according to recent data released through Russia's central bank and federal custom service, the dollar share in trade between Russia and China fell below 50 percent for the first time in the first quarter of the fiscal year 2020. Only 46 percent of the trade between Russia and China used the dollar. At the same time, the share of the euro in the trade between the two countries increased to the highest level of 30 percent so far, while the trade of the two countries in their currency was 24 percent, which is also the largest ever.

 

For the past several years, Russia and China have drastically reduced the use of dollars in bilateral trade. Till 2015, 90 percent of the trade between the two countries was in dollars. But after the trade war between the US and China, and especially under Russia and China's thoughtful policy of reducing trade in dollars, by the year 2019, only 51 percent of trade between the two countries remained in dollars.

 

Aleksei Maslov, director of the Institute of Far Eastern Studies at the Russian Academy of Sciences, told Nikki Asian Review that Russia and China's plan to gradually end the trade in dollars is about to reach such a point that it now ties between the two countries Will turn into an alliance.

 

According to Aleksei Maslov, cooperation between Russia and China in the financial sector suggests that the two countries are finally setting a standard for a new alliance with each other.

 

He said, "Many people hoped that it would be a military alliance or a business alliance, but now it is going in the direction of banking and financial alliance and it will also ensure independence for the two countries in making their decisions." '

 

For Russia and China, it has been a priority to reduce the use of dollars since 2014. After Russia's occupation of Crimea, its relations with Western countries deteriorated and since then Russia and China started increasing economic cooperation. To circumvent US sanctions on Russia, it was necessary to end the use of dollars in trade.

 

ING Bank's Chief Economist for Russia Dimitri Dolgin said, "Anywhere in the world, online money transactions take place in which the US dollar is used in one way or the other. It means that It happened that the US government could order the bank to stop some transactions. "

 

The US Dollar Index, which measures its value against the six-strong currencies of the world, has recorded a decline of nine percent since March and is on the verge of reaching its worst position since 2011. The pressure on the dollar is increasing because it is feared that the corona epidemic will have more impact on the US economy than other economies.

 

Due to the central role of the dollar in the global economy, frequent transactions in the dollar can lead to a boom in the market, on the expectation that the world's central banks and governments will continue to bring economic relief packages. But if the dollar falls further, it will be bad news for Europe and Japan.

 

In the last two years, the price of the dollar was seen to increase, but at the same time, the value of the dollar has decreased by three percent compared to last year. In 2017, the dollar had lost 10 percent. A decrease in the value of the dollar benefits US exports. This will help the US multinational to convert its profits into dollars in its domestic currency. This will be good news for ushering in the US stock market where there has been a decline in the recent few weeks.

 

Goldman Sachs, a US investment banking and financial services multinational company, said in a report that historically the S&P 500 index (the US stock market index that states the position of 500 companies listed on the US stock market) Has given a return of 2.6% when the price of the dollar falls sharply and companies in technology and energy sector perform very well.

 

According to Goldman, a 10 percent fall in the dollar will increase every share in revenue by three percent in the year 2020. Analysts at Goldman anticipate that the dollar price will fall further by five percent in the next 12 months. But the weakening dollar has hardly any political benefit to US President Donald Trump, who is trying to win again in the November election. Trump has always complained that American producers and producers are at a disadvantage due to high dollar prices.

 

Deutsche Bank's chief international strategist Alan Ruskin says, "The benefit of the depreciation of the dollar will take at least a year to reach the industrial sector and it will not benefit Trump in the presidential election in November."