Why the election of Donald Trump could accelerate the end of the domination of the US dollar

Donald Trump's victory in November's US presidential election saw the US dollar strengthen. It reached its one-year high in two weeks and has since maintained its strength against its major peers. His election also raised the prospect of U.S. tariffs on imports, and attention focused on the disruption to global trade this could cause.

In this context, Trump threatened, not so veiled, to impose high levies on the group of major emerging markets BRICS if they created a rival to the US dollar, which has been the dominant currency in the world since World War II .

The use and holding of the US dollar by other countries is known as dollarization. It has different levels of meaning, from countries like Panama using the US dollar as their currency, to its use in setting the prices of major internationally traded commodities, to its use as a reserve currency and vehicle. This latter role strengthens global trade.

Take the example of Chile and Malaysia. Any trade between these two countries will involve the exchange of Chilean pesos for Malaysian ringgit, for which there is no large and active market. Thus, pesos are instead exchanged for US dollars and US dollars for ringgits, allowing the exchanges to take place in a faster and more cost-effective manner.

Indeed, the US dollar is used in more than 50% of foreign trade invoices and in more than 80% of all foreign exchange transactions worldwide. However, it is possible that Trump's “America First” foreign policy will serve to hasten the end of the dominance of the US dollar.

Advantages and disadvantages

Dollarization is beneficial for global trade. But it brings particular benefits to the United States, as other countries must hold U.S. dollars to facilitate trade and pay for many products. This means that demand for the US dollar remains high and therefore is not under pressure to depreciate.

Perhaps a more important point is that when countries buy US dollars, they are not holding them in cash. Rather, they buy US Treasury bonds and thus lend money to the US government. This high demand for U.S. Treasuries means that the U.S. government is able to borrow at a lower rate than would otherwise be possible.

However, there are also disadvantages. A strong US dollar increases the price of dollar-denominated commodities and therefore the cost of international trade. And for the United States itself, a strong dollar can harm its domestic exports.

These drawbacks have often led to suggestions of a global multi-currency system, although this has never gained traction or been seriously considered. But that could change with a second Trump presidency.

During his first mandate, these calls multiplied. Since then, US dollar holdings have seen some changes, so much so that global US dollar reserves have declined.

The US dollar is used in more than 80% of foreign exchange transactions worldwide. Ibragimova / Shutterstock

So what Trump policies could hasten the end of the US dollar's dominance? The new president is seen as pro-business, which will likely translate into policies aimed at reducing regulation and taxes. Boosting domestic growth will result in an even stronger U.S. dollar at a time when global output is more modest.

A stronger US dollar, as mentioned above, also increases the price of oil and similar commodities. Countries will inevitably ask why Saudi Arabian oil, for example, should be paid for in US dollars when those dollars are becoming more expensive.

Trump's economic policies are likely to increase U.S. debt, which could reduce the value of large U.S. dollar reserves held around the world. According to one study, Trump's plans could add as much as $15 trillion ($11.7 trillion) to the country's debt over a decade. A decline in the value of U.S. dollar reserves could make some countries less willing to hold U.S. debt.

The effect of these policies could be considered unintended. But other policies, like Trump's plan to raise tariffs, are designed more deliberately.

A strong U.S. dollar hurts U.S. exports because they become relatively expensive in local currency and make imports relatively cheap. Customs tariffs are a means of protecting national producers from this international competition.

However, assuming no other countries retaliate, increasing tariffs will only serve to further strengthen the US dollar, as fewer imports will mean fewer US dollars sold in the foreign exchange market. This will, at least in part, negate the effect of the tariff policy while imposing trade costs on a global scale.

To avoid some of this, countries could agree to use alternatives as a reserve currency and as a means of paying for international commodities. The Brics countries have proposed a separate currency, which could revolve around one or more existing currencies such as the euro or the yuan. Trump's threats may simply accelerate this search for an alternative.

What would this mean for the United States?

Countries would then have to hold fewer US dollars and would therefore sell their US Treasury bonds. The result will be an increase in the cost of US debt and a decline in the value of the US dollar. Ironically, this would increase the price of imports (the goal of Trump's tariff policy), but it could also lead to inflation.

In a worst-case scenario, if countries coordinated their sales of U.S. dollars and Treasuries, a run on the U.S. dollar would have major implications for the United States and the world. This would lead to an increase in the cost of debt in the United States and the need to reduce its trade deficit.

Globally, this would disrupt trade, increase transaction costs, and cause all dollar-denominated assets and reserves to lose value. This would most likely result in a significant global recession.

The US dollar will remain a global currency for the foreseeable future. But Trump's America First policy and increased militarization of the US dollar could lead to its relegation from being the sole global currency.

What Are The Main Benefits Of Comparing Car Insurance Quotes Online

LOS ANGELES, CA / ACCESSWIRE / June 24, 2020, / Compare-autoinsurance.Org has launched a new blog post that presents the main benefits of comparing multiple car insurance quotes. For more info and free online quotes, please visit https://compare-autoinsurance.Org/the-advantages-of-comparing-prices-with-car-insurance-quotes-online/ The modern society has numerous technological advantages. One important advantage is the speed at which information is sent and received. With the help of the internet, the shopping habits of many persons have drastically changed. The car insurance industry hasn't remained untouched by these changes. On the internet, drivers can compare insurance prices and find out which sellers have the best offers. View photos The advantages of comparing online car insurance quotes are the following: Online quotes can be obtained from anywhere and at any time. Unlike physical insurance agencies, websites don't have a specific schedule and they are available at any time. Drivers that have busy working schedules, can compare quotes from anywhere and at any time, even at midnight. Multiple choices. Almost all insurance providers, no matter if they are well-known brands or just local insurers, have an online presence. Online quotes will allow policyholders the chance to discover multiple insurance companies and check their prices. Drivers are no longer required to get quotes from just a few known insurance companies. Also, local and regional insurers can provide lower insurance rates for the same services. Accurate insurance estimates. Online quotes can only be accurate if the customers provide accurate and real info about their car models and driving history. Lying about past driving incidents can make the price estimates to be lower, but when dealing with an insurance company lying to them is useless. Usually, insurance companies will do research about a potential customer before granting him coverage. Online quotes can be sorted easily. Although drivers are recommended to not choose a policy just based on its price, drivers can easily sort quotes by insurance price. Using brokerage websites will allow drivers to get quotes from multiple insurers, thus making the comparison faster and easier. For additional info, money-saving tips, and free car insurance quotes, visit https://compare-autoinsurance.Org/ Compare-autoinsurance.Org is an online provider of life, home, health, and auto insurance quotes. This website is unique because it does not simply stick to one kind of insurance provider, but brings the clients the best deals from many different online insurance carriers. In this way, clients have access to offers from multiple carriers all in one place: this website. On this site, customers have access to quotes for insurance plans from various agencies, such as local or nationwide agencies, brand names insurance companies, etc. "Online quotes can easily help drivers obtain better car insurance deals. All they have to do is to complete an online form with accurate and real info, then compare prices", said Russell Rabichev, Marketing Director of Internet Marketing Company. CONTACT: Company Name: Internet Marketing CompanyPerson for contact Name: Gurgu CPhone Number: (818) 359-3898Email: [email protected]: https://compare-autoinsurance.Org/ SOURCE: Compare-autoinsurance.Org View source version on accesswire.Com:https://www.Accesswire.Com/595055/What-Are-The-Main-Benefits-Of-Comparing-Car-Insurance-Quotes-Online View photos