Monday, March 18, 2024

How the US Dollar Became an International Weapon of War

The U.S. routinely spends far more on its military than any other country. In 2022, it accounted for more than one third of world military spending, with a total annual spend larger than the next 10 countries combined, according to the Stockholm International Peace Research Institute.

an hour ago

Bloomberg Markets on X: "How the power of the US dollar can be used as a weapon of war https://t.co/EtU0p0kmRB" / X

Over the years, U.S. military spending has continuously hit record highs. In 2000, government debt was $3.5 trillion, accounting for 35 percent of GDP. However, according to Sachs, by 2022 the debt had surged to $24 trillion, representing a staggering 95 percent of GDP.
The ongoing wars have been predominantly funded through borrowing, resulting in a widening of the U.S. budget deficit and a surge in the national debt. Failure to promptly repay the borrowed funds allocated to war will also lead to large future interest payments. According to researchers from Brown University, by the 2050s, these interest payments could total over $6.5 trillion.

Bloomberg

11 hours ago

Janet Yellen's Successor Will Have to Steer the Dollar Through Rough Waters - Bloomberg

The Big Take

Dollar’s Superpower Status at Risk From Turmoil at Home and Abroad

Washington’s aggressive use of sanctions and heightened partisanship are shaking foreigners’ faith in the US currency, according to an exclusive excerpt of Paper Soldiers.

By Saleha Mohsin

March 17, 2024 at 2:00 PM PDT

The World's Reserve Currency - What is the Dollars role?

The US dollar has been the world's dominant reserve currency ever since the end of World War 2 when the US emerged as the world's premier economic superpower.

Today, almost all international trade, investments, and debt are settled and denominated in dollars. National governments also hold a majority of their international currency reserves in US dollars, with roughly 60% of all foreign exchange reserves held in dollars, followed by the Euro at 20%.

Many countries also use the dollar as a benchmark to peg their currencies. Pegged currencies do not use a floating exchange rate and instead, rely on fixed exchange rates.

To do this, governments must hold extremely high currency reserves to maintain the peg, often in the form of US government treasury bonds.

This, in turn, helps to reinforce the role of the dollar as the world's reserve currency and lowers the cost of US government borrowing.

As long as there is high demand for the dollar, the risk of a complete collapse remains low.

The exact demand for the dollar depends on several factors, including its perception as a store of value, the US central bank's interest rate policy, its usefulness as an international medium of exchange, and, above all else, the US's position as the global economic leader.

Recently, there has been discussion regarding the potential replacement of the US Dollar, with a focus on the BRICS alliance, comprising Brazil, Russia, India, China, and South Africa. Will the currencies of BRICS nations potentially replace the US Dollar in the near future? As of now, there isn't sufficient evidence to support this claim, despite its speculation.