US dollar in danger of losing status as world’s dominant currency

Politics and global economic shift reducing dollar’s appeal as reserve currency

The US dollar is in danger of losing its position as the world’s reserve currency, as a group of “very important countries” push their own currencies as the dominant means of trade.

Anne Korin, from Washington-based think tank the Institute for the Analysis of Global Security, told CNBC’s Squawk Box that countries such as China and Russia, along with members of the European Union (EU), had increasing reason to ditch the dollar as the reserve currency of choice.

Specifically, she cited Washington’s unilateral withdrawal from the Iran nuclear deal in 2018, and its subsequent imposition of sanctions, as one factor behind the dollar’s declining status. The European Union wants to continue trading with Iran, but doing so in dollars would leave European companies at risk of retaliation from the Trump administration.

“Europe wants to do business with Iran. It doesn’t want to be subject to US law for doing business with Iran, right?,” said Korin. “Nobody wants to be picked up at an airport for doing business with countries that the US isn’t happy that they’re doing business with.”

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There are other reasons. Analysts at JP Morgan warned earlier this year that the dollar could lose its status as the world’s dominant currency as the balance of economic power continues to shift to Asia.

A note from JP Morgan’s private bank states: “As this region grows, the share of non-USD transactions will inevitably increase which will likely erode the dollar’s ‘reserveness’... In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold.”

Some experts already believe the world is in the middle of a currency war, with the US, China and the EU all battling for dominance. In response, some analysts are advising investors to cut dollar holdings and replace them with “store of value” assets such as gold. Bitcoin could potentially perform a similar store of asset function and could be used as a hedge against the long-term decline of the dollar.

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