Financial encyclopedia

Money is not only a tool for transactions, but also a symbol of national strength and system. Historically, the pound once dominated the world. After World War II, it was taken over by the US dollar.

Today, the call for "de-dollarization" is growing louder. Who will be the next currency hegemon?

How does the US dollar dominate?

After World War II, the United States established the Bretton Woods system. The US dollar was pegged to gold, and other currencies were pegged to the US dollar.

In 1971, the US dollar was decoupled from the gold standard, but the world still believed in it because behind it were:

Oil transactions require US dollars

Financial infrastructure such as SWIFT is globally applicable

The US Treasury bond market is stable and deep enough, making it the preferred reserve for central banks

The US dollar is not merely money; it is a global system.

What conditions are needed for global monetary hegemony?

The economic volume is large.

The political system is stable

Opening up of the capital market

It has wide international uses.

Have the ability to lead international rules

The reason why the US dollar is strong is that it meets all the above conditions simultaneously.

Who will be the next runner?

RMB

The Chinese economy is large and promotes internationalization

The capital account has not been fully opened and trust has yet to be established

Euro

The system is mature.

The EU has policy differences and lacks a unified finance

cryptocurrency

Convenient for going to the center and cross-border travel

Large fluctuations, unclear regulation and limited uses

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IMF Global Foreign Exchange Reserve Data (Q4 2023)

Us dollar: 58.4%

Euro: 20.5%

RMB: 2.3%

Although challengers have emerged, there is still a long way to go before they can be replaced

De-dollarization = Confidence begins to waver?

Many countries have successively introduced the following actions to deal with risks:

Trade settled in local currency

Increase holdings of gold and reduce holdings of US Treasuries

Self-built payment systems (such as CIPS)

Although the status of the US dollar remains unchanged, international trust is no longer monolithic.

Monetary hegemony is a "trust project", and it is not something that can be taken over simply by having sufficient strength.

Whether someone can take the next baton or not depends not on "who is the strongest", but on "who is the most reliable".

Investors should have a clear understanding of the direction of their funds. Global funds and risks are shifting along with trust.