The US dollar has been the world standard for currency since the end of World War II – but there are legitimate contenders that could take that title away. Whether it’s the relatively new BRICS conglomerate of economic powerhouses, the Chinese Yuan, or even digital currencies like Bitcoin, the options are numerous for the world to step away from the dollar as its value continues to sink and the instability of American politics puts a strain on the once unstoppable greenback.
It’s really only a matter of time. Global reserve currencies don’t last forever. Portugal filled the role back in the 1400s and that only lasted 80 years. After that, Spain took up the mantle and held it for an impressive 110 years, and no country has beat their record. While it might seem unchanging for the generation or two living with a particular reserve currency, if you take a macro look at human history, global reserve currency turnovers happen pretty quickly.
So the important questions are when will the US Dollar lose its preferred status and what is the most likely replacement?
A BRICS Currency
The nations of BRICS – Brazil, Russia, India, China, and South Africa – are gathering in August 2023 to make a strong argument for the replacement of the US dollar. Each country involved has its own sizable economy; together, they represent 17% of the world’s trade and 43% of the world’s population. Combined, they have a greater GDP than the G7. In other words, the potential for BRICS to make a respectable attempt to unseat the dollar is real, and for countries like Russia and China in particular, dethroning the US Dollar is an important goal.
Should BRICS successfully launch their own currency, it would mean those countries would be less tied to the inflation-prone dollar, which has been contending with recurring debt ceiling crises and a reduced credit rating. For Russia, it would mean a way to conduct international trade without contending with sanctions incurred by the war in Ukraine. As the US potentially loses its status as a global reserve currency, the strength of the US as a world superpower will also diminish, which would be good news for China who is ready to fill the void.
Other countries may be joining BRICS too, with Saudi Arabia, Iran, Cuba and Argentina listed among 40 countries possibly interested in becoming part of BRICS+. While BRICS currently represents a sizable GDP, more countries joining will only make it easier for a BRICS-led effort to topple the Dollar.
That isn’t to say that launching a new currency would be easy for BRICS. New currencies have been launched before, of course, and the nearest similar concept would be the Euro. For BRICS to come up with a successful currency model, it would need to establish an exchange rate outline for each country, a method of payment that could be used in each country, and have a stable financial market. After those hurdles are cleared, BRICS could potentially position its currency as the global standard – but the road ahead is clearly a long one. However, the 2023 Durban Accords and meeting between BRICS nations could be the first step in that process.
China’s push for the yuan’s dominance
Not all currencies contending for the throne have so many obstacles in their path. China has made the argument that the yuan itself is a suitable replacement for the dollar, which it severely denounced as a fiat currency in a 2023 paper from the Ministry of Foreign Affairs. Along with referencing the global instability caused by the reliance on the dollar, the paper describes the US as having an economic hegemony that it uses to coerce nations around the world.
While it may sound like standard talk from an economic rival, China’s anti-dollar campaign has some muscle behind it. China is the world’s second largest economy and it has the capacity to overtake the US as the first. China is able to conduct a significant amount of its trade with other nations using yuan rather than the dollar, leading Andrei Kostin, chairman of Russia’s VTB Bank, to say that the yuan could replace the dollar globally by 2033.
Others are more skeptical that the yuan would be capable of totally unseating the dollar, including economist Peter C. Earle. He sees the complete replacement of the dollar on the world stage as a near impossible situation based on the US’s standing, instead envisioning that the dollar could simply be used less in the future. His argument is that the yuan is based in part on the dollar’s value, and it is only allowed to be traded within a 2% range of a midpoint determined daily by the Chinese government – in other words, it isn’t nearly as flexible as it needs to be to replace the dollar for the high volume of international trades that take place each day.
The Euro sits on the sidelines
When the Euro was first established in the 1990s, after ten years of deliberation, economists foresaw that it could overtake the dollar by 2020 as the world standard currency. Their supposition was based, in part, on the continuing undermining of the dollar’s value – which has indeed been an ongoing trend.
The Euro isn’t immune to its own undermining, however, and in 2022 the Euro lost parity with the dollar for the first time in 20 years. The war in Ukraine and ensuing economic stability has caused the Euro to lose its standing, which has contributed to its supporters losing faith in the euro’s ability to unseat the dollar. That could change in the distant future, of course, but for now, the euro is taking a back seat.
Cryptocurrencies
Despite wildly volatile swings in valuation, cryptocurrencies such as Bitcoin are increasingly being eyed as potential contenders for global standards. The benefits of the Bitcoin system include the lack of centralization, meaning Bitcoin can be used anywhere around the world it is accepted, and it is not tethered to calamities in any particular localized region.
Some countries such as El Salvador have gone all in with Bitcoin, but they currently represent the minority rather than the norm. Around the world, countries are moving to position Bitcoin and other cryptocurrencies as viable payment methods, but it is a process that takes time and careful regulation to establish correctly.
Once the US establishes a cryptocurrency regulatory system, it is possible that cryptocurrencies will increase in value and become more attractive to investors looking to back up their dollar with hard currency – potentially paving the way toward worldwide acceptance for cryptocurrencies in general. At that point, particularly if the dollar continues to devalue, it’s possible for established coins such as Bitcoin to edge in on the global standard.
A Gold-Backed “Something”
Perhaps one of the most promising threats to take down the US Dollar is when you hear someone say it’ll be gold-backed. The world seems to be longing for currency that has actual value these days. We’ve been living in a fiat world for so long that the magic is starting to fade, and that’s probably why we see so many regular people investing their savings into gold. There have been talks about the potential BRICS currency being a gold-backed one, and rumors have been circulating quite a bit this year that Russia and China are both working toward a gold-backed currency. If China really wants to yuan to take over as a global reserve currency, then backing it with gold could be their best play to building that reality. There was a time, after all, when the US Dollar was gold-backed, and many experts would certainly argue that going off the gold standard was the beginning of the Dollar’s demise. So whether it’s a gold-backed cryptocurrency, a gold-backed yuan or a gold-backed something else, any potential contenders to the US Dollar would certainly be thrust into the forefront with a move toward gold.
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Exactly.
Foreskins will be the new unit of currency. They’ll be called “schmekle- Shekels”.
The dollar will be replaced by something. It can’t be fiat or we will be right back where we started.
At the current inflationary rate barter may be the next currency!
Russia’s ruble or China’s renminbi ? Or German mark, French franc of English pound? But really are any of them any better than the dollar? All are pretty risky right now.