After almost 18 months of uncertainty with the pandemic, currencies are starting to see a decline in value due to lack of travel. But has the US dollar been affected?
Why are there fears that the US dollar might collapse?
The US dollar is now trading at its lowest level since early 2018. This is due to a few factors including global uncertainty, the rise of the euro and a decline in US current accounts being opened.
Over the past 18 months during the Covid-19 pandemic, travel has been restricted meaning that there has been less money coming into the US. With less tourists buying this currency, there’s been a decline in the amount of trading done with it.
With less US current accounts being opened, there’s less money maturing in banks meaning that the value depreciates over time.
What could replace the dollar if it loses status?
The Chinese yuan could replace the US dollar as the world’s global currency. As China’s economic status continues to grow, they are making steps for this to happen. We could see a shift from a greenback to a redback-dominated world.
However, the yuan wouldn’t be able to beat the US dollar unless most major banks around the world keep a total of $700 billion worth of yuan in their foreign exchange reserves. China’s financial markets would also need to be transparent for this to happen, and the yuan would need to meet the US dollars reputation in terms of stability.
How can the dollar be saved?
According to Tickmill.com, a strong US inflation will play a positive role on the US dollar.
Arthur Idiatulin, stock market and currency expert at Tickmill says “Last year, in April and May, inflation reached a local minimum, after which it turned into growth. Compared to those months, inflation in April and May of this year can easily show high growth rates.”
Having this inflation may bring some value back to the US dollar and encourage those within the stock market to look to trade it once more.
The dollar is believed to be a safe and stable currency, usually converted to by most when times are uncertain. Although the US is facing large amounts of debt due to Covid-19, they are still in a position to borrow more if needs be so they don’t see any signs of needing to worry about a collapse in the US dollar.