Collateral damage in the global financial battle | Atalayar

The euro and yen depreciated this summer, with the euro falling to its lowest value against the dollar since its inception. It is the monetary translation of the weakness resulting from the crises that are ravaging the world. But it is also a demonstration of the strength of the dollar, the American currency that has become a global currency since the Bretton Woods agreements, thus replacing the pound sterling which had existed since the first third of the 19th century, after three centuries of the Spanish real de a ocho .

Among the agreements signed by China and Russia in the aftermath of the war in Ukraine, one of the most important is to boycott the strength of the dollar and build an alternative, probably based on the yuan. This goes in the same direction as the attempts to replace or at least have total control of the Internet or content distribution platforms with national drift.

For the moment, it seems that they are not succeeding. On the contrary, the strengthening of the dollar is the mainstay of the economic and financial sanctions decreed by the United States and the European Union. Today, and despite the many gurus who advocate the decline and agony of the American empire, the fact is that 90% of global currency transactions are made in dollars. Moreover, 60% of the foreign exchange reserves of some two hundred countries sitting in the UN are denominated in dollars. The desire of Europe’s most pro-European leaders to make the euro the alternative currency has barely translated into just 20% of global foreign exchange reserves denominated in euros. However, both the dollar and the euro maintain a considerable distance in this respect from the Japanese yen (5%) and the Chinese yuan (2.5%).

Russia has countered dollar and euro pressure by demanding that its oil and gas supplies be paid for in rubles and severely restricting domestic consumption, given reduced liquidity to meet import payments.

This was the situation when the US Federal Reserve raised interest rates, citing among many other reasons the dire need to contain soaring inflation. As can easily be deduced, this increase makes the debt more expensive for those who hold it in dollars, that is, the vast majority of countries on this planet, who will have to make additional efforts to honor it. This pressure is also undoubtedly a demonstration of the power of the United States, since this simple decision to raise interest rates also has an impact on world trade as a whole.

Austerity, demagoguery and unrest

Many over-indebted countries will be tempted to try to embrace the alternative advocated by the Russians and the Chinese. In any case, internal revolts are likely to increase in frequency in countries undergoing an inevitable austerity cure, where demagoguery and confrontations will increase. One cannot help but think in this respect of countries like Argentina, which always point to the IMF as the insatiable dragon that sucks their blood and cries out desperately for help.

What Argentina and others in the same or similar situation do not seem to be able to achieve is that the dollar ceases to be the international reserve currency.. Unless the United States collapses, it will continue to rely on its currency as the overwhelming majority choice for its payments and reserves. Everything comes and goes because nothing lasts forever, not even the strongest empires. But for now, it’s the turn of restrictions and adjustments, especially in countries that not only have become accustomed to living beyond their means, but also whose governments have done so much beyond their responsibilities.