What could dethrone the dollar and send the US into economic crisis?

 

Having the world's reserve currency for a long period of time, as the US has had with the dollar since the Second World War, gives the impression that all the benefits that accrue from this situation are premanent.

There are many who still feel this way.

In spite of an aggressive global central bank program of buying gold and selling US Treasuries.

In spite of the loss of the petrodollar.

In spite of China and Russia - and others - engineering bilateral trade agreements around the globe for commodities that settle in currenies outside the dollar.

YET - all this could amount to a very gradual process of dedollarization that takes decades and would not provoke any crisis here in the US as we'd have ample time to deal with this shifting landscape through intelligent policy.

UNFORTUNATELY the thing that would greatly hasten this process - and tip the US into an economic debt crisis - is the economic weaponization of the dollar by ignorant US political regiems.

AND UNDFORTUNATELY this process was begun suddently in 2016 with a regiem of Tarrifs, and then kicked into overdrive in 2020 with Sanctions, confiscations and the removal of Russia from the Swift system.

The problem all of these aggressive economic moves that may make sense in the very short run is that they provide massive incentive for other countries to aggressively dedolarise.  So a process that could have taken decades is transpiring in years and could possibly tip the US into crisis at any time.

China, Russia, Iran, North Korea, the oil producing middle east Countries and South American Countries constitute a huge block that doesn't want to be hostage to unstable and aggressive US financial regiems.  And add in most of commodity producing Africa, as well as the Stans that are rich in uranium and oil and gold and add in India which would like to modernize in a western way but is geographically situated within the other Block and dependent on them as trading partners - and you get a huge area of the world actively engaged in dedollarisation.

Some like India and Saudi Arabia are moving tentatively away from the dollar - others like China and Russia are moving quickly.

Every Sanction, Every Tarrif, every confiscation speeds up the dedollarisation process.  Because every country realizes they could be next.  

And most unfortunately we have an election coming up that pits two cantankerous old men who are competing to be the toiughest and most belligerent in ways that are guaranteed to to do the most harm to the dollar.

This deosn't mean the dollar itself will fall in value.  It does mean our ability to fund our debt by printing dollar denominated treasuries will become much much more expensive.  It does mean our rates will rise while our debt is spriraling out of control. 

And it does mean the inflation will be a virulent problem for a very long time.