The resilience of the American dollar as a reserve currency
The resilience of the American dollar as a reserve currency The 17TH Summit of BRICS, held on 6-7 July 2025 in Rio de Janeiro, Brazil, has come and gone. Some of the issues discussed at the summit are the rise of protectionist trade practices, imposition of tariffs by the US and the fate of the Dollar as a global reserve currency. Many of the BRICS members advocated the removal of the dollar from its “exorbitant privilege” global position and recommended a multipolar financial system. To all the advocacies and calls for its replacement, the Dollar seem to be muttering like Mark Twain; “the reports of my death are greatly exaggerated”, “my head may be bloody but it is unbowed.” The decision to make the American Dollar, the world’s reserve currency was taken in 1944, when 700 representatives of 44 nations met in Mount Washington Hotel in Bretton Woods, New Hampshire, US to fashion out a post-World War 11 economic order. This decision was based on the fact that the United States was undisputably the most powerful and strongest economic power in the world holding two-thirds of the global gold reserve. Since then, the dollar also known as the greenback has served as a good, liquid, trusted, reliable and efficient global reserve currency driving world trades, businesses and wealth distribution. A currency is as strong as its country’s economy and politics. A currency symbolizes the reputation of its country. For a currency to serve as a global currency, it requires to have three characteristics namely, reliability, credibility and transparency. The Dollar has all these. The politics of a country can affect the perception and the confidence on its currency. The US in its desire to assert itself and discipline countries that pose as threats to global peace and economic order has imposed sanctions on many nations. The most prominent was the imposition of economic sanctions on Russia in 2022 at the outbreak of the Russia-Ukraine war. The Russian foreign exchanges reserve and investments in the West to the tune of 300 billion dollars were seized and the country was ejected from the global SWIFT payment systems. Western countries, US and Europe placed embargo on the importation of Russian oil and gas. These measures disrupted the economy of Russia. Equally, sanctions were imposed on Iran. These sanctions raised the fears of many countries to the risks and their vulnerabilities in investing and holding dollar assets. The recent imposition of tariffs by President Trump, its consequent heightening of uncertainty in the global economy and the concomitant adverse effects on the dollar vice -verse the US bond and stock markets have raised the agitations for an alternative to the Dollar as global reserve currency. Before the events of the Liberation Day of 2nd April, 2025, there has been moves, realignments, calls, global coalitions, agitations, campaigns to seek an alternative and escape the dominance of the Dollar in what can be termed the Dedollarisation campaign. What are the alternatives to the Dollar. The first is the Euro. The Euro is a widely acceptable currency. However, the Euro has certain drawbacks that will prevent it from serving as a global reserve currency. The Euro is not liquid. The Euro has no core foundational government to rely on. It relies on a number of governments in Europe. The second currency that has the potential to serve as a global reserve currency is the Chinese Yuan/Renminbi. However, the Yuan has major drawbacks. China does not have a transparent economy, the operations in its economy are opaque. Equally, China does not have a transparently developed capital market, its disclosures are not explicit. The People’s Bank of China maintains stability and financial security in the Chinese financial system by the use of capital controls. This guides how much foreign money can move into and out Chinese economy. This action impacts on the foreign currency exchange rate. The implication is that China can never liberalize its current account. How can China pursue the internationalization of the yuan. What China can do and is currently doing is to exert its spheres of currency influence among its trading partners. This is what she does with her BRICS partners. India is pursuing Russian oil in UAE dirham or roubles. China switched to yuan to buy some $88Billion worth of Russian oil, coal and metals. Chinese national oil company CNOOC and France’ TotalEnergies completed their first yuan settled LNG trade. The third is the expected BRICS bloc currency which they have announced will be issued in 2026. The world is still buoyed by the sentiments and the euphoria of the sheer size of the population and economic proportion of the BRICS bloc. There is no empirical evidence to show that multi-country currencies have done well to serve as global reserve currencies. On the contrary, such currencies face challenges such as illiquidity, differing economic policies, the risk of potential failure during economic depression and dominance of larger economies over smaller ones. The fate of such countries like Greece, Spain etc under Euro currency is an example. The reality will dawn on us when the BRICS currency is issued. For a currency to be a global reserve currency, it comes at a cost to its country. The country will be compelled to run a current account deficit. This is the fate of United States with the Dollar. There are more global demands for the US Dollar than the US requires to meet its imports and other transactions. This makes the US to grapple with greater deficit in order to satisfy the global demand for Dollars. This explains the reason for the persistent current account deficits in US. Being the issuer of the global reserve currency, the US is under obligation to run a bloated budget and persistent current account deficit. As the global trade expands, the demand for Dollar increases. These demands can only be satisfied or supplied to meet global demand by US running a current account deficit and backing it by issuing denominated instruments