Financial experts analyzed the prospects for the collapse of the US currency and its consequences
Many economists have been talking about the inevitable collapse of the dollar for more than a day, a year, and even a decade: this is the main means of payment in the world for a long time rests solely on the military-political power of the United States and the uncontrolled work of the Washington printing press. But now this rhetoric has acquired a special intensity.
We invited domestic financial market analysts to draw scenarios for a possible collapse of the US currency and predict its consequences.
Alexey Fedorov, TeleTrade analyst: “First of all, it is necessary to decide on the wording of what can be considered the collapse of the US dollar. Naturally, the disappearance of the American currency is out of the question: in modern history there were no cases at all when the currency of a country with a large (and even more so — the largest) economy disappeared outside the context of a change in the political system.
Therefore, the collapse of the US dollar , apparently, two main situations should be considered.
The first one is its strong depreciation, the collapse of the asset's market rate by more than 50-60%. The second is the loss of the status of the world's main reserve currency by the US dollar, meaning its dominant share in international settlements and gold and foreign exchange reserves.
Considering both situations of the collapse of the US dollar over a long distance, say, in 30-40 years, it can be argued that they will inevitably occur. This is evidenced by the history of the last 300-400 years, where there was already more than one world hegemon with its own «world» currency, which over time gave way to a new empire and a new currency.
The last time such a change occurred in the first half of the 20th century. By the beginning of the last century, the United States surpassed the British Empire in terms of the nominal size of the economy, this is a prerequisite for world hegemony. After that, during the first half of the 20th century, the American dollar ascended the throne, first through the Bretton Woods monetary system, where the dollar was tied to gold, and then through the Jamaican monetary system, where the US dollar actually replaced gold.
In total, the British Empire in the status of world hegemon lasted about 100-120 years, the United States has been in this status for about 80 years.
Given the historical experience of shortening the term of «hegemony», we can assume that in the next 10-15 years the United States will cede the status of the world's largest economy.
I really don't want to draw historical parallels, but the last period of changing the main world currency, which lasted about 40 years (the first half of the 20th century), was accompanied by two world wars. Now, as we can see, the situation is very similar, because at the moment when China has approached the superiority in the nominal size of the economy over the United States, the first battle takes place on the «European front», which can be called reconnaissance by battle.
Judging by the macroeconomic dynamics, we can assume that China will surpass the United States in terms of nominal size of the economy in the next 7-10 years. Then the question of a new monetary system will arise and, apparently, a second, larger battle will begin.
Only as a result of its results and if China wins this fight, by about 2033-2040, conditions can form for the collapse of the US dollar, which we have defined either as a fall in the exchange rate of the American currency, in this case against the new world reserve currency, the yuan, by 50- 60% or more, or as the loss of the status of the world's main reserve currency by the dollar.
At a shorter distance, the collapse of the dollar is hardly possible. If we take such factors as the technical default of the United States due to the failure to raise the national debt limit and the victory of Russia in the NWO, and hence China in the first battle with the United States, as well as stagflation in the American economy, then all these events will continue to occur and recoup in a dollar-centric system.
This does not mean that the US currency will not suffer in such a situation, on the contrary: the US dollar exchange rate against other hard currencies may sink by 20-30% in the next few years. But since this is still the same dollar system, which has no real, that is, already working alternative, the collapse of the dollar will not happen. Moreover, after a strong weakening of the US currency, its new strengthening will begin, as it always happened in the foreign exchange market with some frequency.
Although we can imagine a situation in which an alternative currency system will be deployed much faster — not in 15 years, but in the next 5-7 years. But it definitely should not be a fiat system (classic money, paper — «MK»), because its restructuring will take decades, but a digital system based on the blockchain. These are digital currencies of central banks that can be used without contact with the dollar system.
Technically, this is feasible, but for such a quick transition, a force majeure of such a level must occur so that it becomes a sufficient incentive for all BRICS countries and a number of other states to abandon the use of the American currency in favor of the digital yuan. This could be provoked either by the civil war in the United States, or by the legislative refusal of the American government to fulfill its debt obligations. Both scenarios are still unlikely, as they are not beneficial to the still strong world hegemon.
Of course, for Russia, the rapid collapse of the US dollar, and hence the loss of world leadership by the main geopolitical opponent in the coming years, would be very beneficial. In this case, in addition to the obvious political rise, especially in the post-Soviet space, Russia would have the opportunity to shake off the sanctions fetters from economic relations with European countries.
Plus, extreme global turbulence, which in this case would necessarily have arisen first in the financial markets and then in the real sectors, would be the least destructive for the Russian commodity export economy due to the highly probable increase in oil and gas prices, as well as due to high level of food security.
But Britain, Poland, Japan, a number of the Baltic European countries and other Western countries importing raw materials, whose economies largely depend on the ability of the United States to issue a world reserve currency, will be forced to drastically change the political course and move on to heavy restructuring of their economies.”
Alexander Razuvaev, member of the Supervisory Board of the Guild of Financial Analysts and Risk Managers: “There are two scenarios for a possible collapse of the dollar — hard and soft. The tough scenario will begin with a banking crisis a la Lehman Brothers in 2008.
The events of March this year with the bankruptcy of several prominent regional banks in America showed that the US financial system has a number of vulnerabilities, although so far the regulator has managed to stop the problems.
If their volume increases and the American “bank fall” begins, then the authorities can take an unprecedented step and abandon the dollar. Or rather, make it part of the new Amero currency, the emergence of which will be the result of a political and economic union of three countries — the United States, Canada and Mexico.
This will already be a tough anti-crisis measure: the appearance of a new currency in such a short time will cause a shock, but it will be an attempt to save the United States by joining the resources of its neighbors. At the same time, the US debt will also be restructured, which will improve the financial system as a whole.
A mild scenario for the collapse of the dollar is associated with the growing influence of the BRICS. This «powerful five» (Brazil, Russia, India, China, South Africa) will meet in August for a summit in South Africa and there is already talk that, most likely, a number of important financial decisions will be made there.
Let me remind you that already in 2020 the contribution of the BRICS countries and the G7 to world economic growth was at the same level, and then the positions of the collective West began to decline.
According to the calculations of the International Monetary Fund, the BRICS countries will provide 33.6% of global economic growth by 2028, while the share of the G7 will decrease to 27.8%.
The same IMF says that in the next five China will play the main role in the global economy, followed by India in second place and Indonesia in third place. Two of the listed states are part of the BRICS, the countries of this union account for half of the inhabitants of the earth and a huge amount of other resources.
There are two possible types of decisions that will be taken at the summit in South Africa — unlikely and most likely. Both of them will contribute to the collapse of the dollar.
In an unlikely scenario, it is possible for BRICS to create its own «supranational» monetary unit for internal settlements and interactions with partners. The closest analogy to such a currency is the Soviet transferable ruble that existed for the countries of the Council for Mutual Economic Assistance (CMEA) from 1963 to 1987.
This currency will most likely be pegged to a «basket» of unconditional values - it will be calculated by the average value of a group of goods: gold, oil and petroleum products, possibly silver, etc. But, I repeat, I consider such a scenario unlikely.
Most likely, the BRICS countries will simply abandon the dollar in favor of the yuan. Turkey, Saudi Arabia and other players should also join this «powerful five», which will strengthen this supranational association and deal a blow to American currency hegemony.
And if a significant part of the dollar mass returns to the United States, then inflation will increase there. Further, everything will depend on the wisdom and speed of reaction of financial regulators and the American authorities as a whole.
In a tough scenario, processes similar to those that occurred in the United States during the Great Depression, adjusted for the 21st century, may begin — there possible sharp rise in prices, unemployment, etc.
It is in the hard scenario that the likely decision of the authorities in response to the crisis will be the introduction of a new monetary unit «amero» instead of the dollar. Well, that is, they will launch «new money» and write off old debts in parallel. Monetary reform is always quite painful, but there is nothing wrong with that. It is clear that their global leadership after such a step will be greatly shaken, if it is appropriate to talk about it at all. But for the United States, as a large country in the Western Hemisphere, nothing will happen.
If there is a gradual transition to the yuan in the world, then the dollar supply will return to the States and there will be high inflation, but there will be no unemployment, that is, there will be no collapse in the labor market and in the real sector.
The main consequence for the world in both considered scenarios, the countries holding dollar assets will experience their depreciation, or even zeroing. This could be a strong blow, and the heads of state are already trying to think about this by regulating the amount of US currency and other assets on their balance sheets.
In this sense, Russia's positions are quite protected, and the sanctions have played a positive role here — in principle, we have largely moved away from the dollar, so there will not be any strong consequences here.
This time we have a shift world leader, perhaps, will be softer than usual — without a world war. And even for the United States, this will not turn into a Great Depression.
If everything remains as it is, but the dollar loses its reserve status, then there will be inflation, but it will still not be the same as in Russia in the nineties. In general, there will be no tragedy: the United States will simply sink to the position it was in before World War II.”
“There are no such scenarios in the coming decades”
Mark Goykhman, financial analyst, Candidate of Economic Sciences: “I don't think the collapse of the dollar is at all probable. There are no such scenarios in the coming decades. All reasoning on this topic is an unjustified hypothetical stretch, like in futuristic horror films.
Even if we assume a default in the US, this will not lead to the collapse of the dollar. This has already happened in history when the United States refused to bind the dollar to gold, which they guaranteed, when the French President de Gaulle loaded the ship with dollars and sent them to America to exchange them for gold. Then other countries did the same, as a result of which, not Eisenhower, but Nixon, in 1971 announced the abolition of the gold backing of the dollar.
What a shock it was for the world, then, by the way, the Forex market itself was born — flexible changeable exchange rates to each other. But the collapse of the dollar still did not happen.
And now, even the incredible hyperinflation in the United States will not lead to the collapse of the dollar. Depreciation is possible, and it will occur, as the rates in the US decrease. But it's not a crash at all.
In 2008, at the peak of the global crisis, the dollar was almost half weaker against other currencies than in 2002 and 40% weaker than now. But even then it was the most used currency in calculations and reserves, the reliability of investments in dollar assets continued to be a benchmark.
The dollar will not be allowed to collapse by other countries, international organizations, the US Federal Reserve itself, which, if necessary, can provide any liquidity, support dollar payments, reserves. For there to be a collapse, the US itself and the world's leading economies must be interested in this. But they are interested in the opposite. And other countries, less developed and less dependent on the dollar, simply do not have the opportunity, strength, economic power to adequately replace the dollar with other currencies.
The role of the dollar will gradually decline — that's a fact! But precisely gradually, not critically, limitedly, without any collapse. There will probably be regional alternatives to the amero dollar in Latin America, the yuan in Asia. Because, of course, the dominance of the dollar has bothered many.
You can hate the policy of the United States, but for the practice of the vast majority of economies and businesses in the world, the dollar is convenient, technological, universal, and cheap to handle. So «nothing personal, just business»: there are no conditions for collapse and abandonment in the world.
Andrey Loboda, economist, director of communications at BitRiver: with the bankruptcy of Lehman Brothers almost 15 years ago. Then opinions of reputable analysts and market participants about the decline of the dollar era and its abolition in all chains of international relations began to be heard from everywhere.
Many years have passed, but the dollar, as it was the main currency of reservations and settlements, has remained so. Moreover, whatever one may say, the market prices of thousands of key exchange assets are still denominated in dollars.
It so happened that the US payment unit is firmly integrated into the global payment system. The last three years, which have turned the global economy upside down (due to the coronavirus pandemic and then the geopolitical aggravation around Ukraine), have shown that there are no worthy and viable competitors for the greenback.
The euro remains in the shadow of the dollar, the pound does not have the necessary liquidity.
The yuan could compete with the dollar on a global scale, but, apparently, the National Bank of China (and the Chinese authorities in general) is not interested yet. Although it is the yuan that is often called the likely successor to the dollar in the role of the world currency leader. But its rate is controlled by the local regulator, and besides, China is not interested in promoting its payment unit.
However, one should not think that the pedestal under the US dollar is unshakable. Over the past 4-5 years, a number of large economies have put a lot of effort into converting part of trade contracts into national currencies. Russia has also taken this path (partly by force, as a result of unprecedented sanctions). Moscow has signed many contracts for the supply of energy resources in national currencies, including rubles.
Not in all cases, the parties willingly agree to such agreements, but where they succeed, the relationship between the parties goes to a new level, without the need for double currency conversion or bilateral hedging of risks.
Nevertheless, one can consider scenario of an accelerated decline in the influence of the dollar system in the world. Printing more than 31 trillion unsecured dollar bills and keeping the world in dollar bondage is the undeniable success of the United States in global financial and geo-economic markets.
It is unlikely that the whole world will be watching silently and submissively over the sanctions and overt protectionism of the United States. At a minimum, we will see the formation of two currency systems — North America and Southeast Asia. The place of Russia is still very blurry — with such a careless attitude towards the ruble, it will be difficult to restore Russians' trust in it as an instrument of savings and, moreover, increasing money in the next few years.
However, in the vastness of Eurasia EAEU in particular, the Russian ruble is historically destined to dominate and effectively promote integration processes. A strong and healthy ruble is the most important reason for our neighbors' love for Russia.
The Russian ruble could be supported by both gold, which Russia has plenty of, and the very successfully mined cryptocurrency. As soon as the era of a weak ruble ends, changes will come instantly.
But in the next five years, it is unlikely that anyone will stand on the world podium next to dollars. In the foreseeable future, there are no options for the world system to abandon the dollar. It will be a pity if the results of the national labor of Russians will again have to be evaluated in dollars.”