The United States is disliked by many of its allies and enemies. The European Union, its closest ally was formed partly to compete with the US. Most countries have frictions with the US because of its interference in the world’s systems. The country has attacked nations, killed presidents, and has always interfered in the internal affairs of other countries.
Today, many countries are trying to depose the United States from its place at the top of the world economy. However, this is turning to be a difficult thing because of the important role the dollar plays on the global economy. The USD is the most powerful currency in the world, which is responsible for more than 60% of all transactions. It is used in all countries, even those that have the biggest diplomatic conflicts with the US. For example, while the European Union imports crude oil from the Middle East, the region still uses the dollar for these purchases. China too uses the dollar for oil purchases. The chart below shows the share of the world currency reserves.
As shown, the share of the USD has remained relatively stable. It is followed by euro, sterling, and yen. While China is the second-biggest economy in the world, the share of the yuan in global trade is miniscule. Traders avoid it because of its volatility.
In many large capitals, there are discussions on how to replace the dollar. This is because of the power the US carries by having the dollar on its back. The country can impose sanctions to any country that does business with the dollar. This has irked sanctioned countries like Russia, China, Venezuela, and Iran. On this, there are two main types of sanctions. The primary sanctions prevent American citizens from dealing with a country or party. Secondary sanctions allow the US government to penalize third parties that do business with a sanctioned country. Therefore, it becomes hard for companies to do business with countries like Iran. In 2014, US authorities fined BNP Paribas almost $9 billion for violating sanctions.
In China, the country uses the yuan to purchase crude oil. It does this to purchase Russian and Iranian oil. Venezuela has tried to avoid US sanctions by creating a cryptocurrency that helps it sell oil to other countries. European leaders have also complained about their over-reliance on the dollar in the purchase of oil.
However, with all this, the dollar remains the king and Donald Trump has started a currency war. Two weeks ago, he attacked European Central Bank’s (ECB) Mario Draghi after he sounded dovish, lowering the currency value. He has been attacking the Fed for hiking rates. This is because he believes that a lower dollar is better for the US. He has attacked China for currency manipulation. He has also accused other central banks for lowering their currencies.
However, his attacks on other countries and the decision by other countries to promote their currencies is having a positive reaction to the US dollar. This is because the dollar has a lot of confidence in the market. In fact, as shown below, the dollar index has been on an upward trajectory in the past one year.