Is the dollar really in trouble or not?

Long-term, yes, but there’s even bigger trouble before that

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Not very long ago, only the most radical outlets entertained the notion of the dollar losing its “exorbitant privilege” as the world’s reserve currency. The concept, however, seems to be having a moment, with even CNN hosting a recent debate about the greenback’s fate. Is the bedrock of U.S. global economic might starting to crack? 

The answer: the people with the most power to determine this outcome don’t want things to change, but long-term conditions are quickly slipping out of their control. 

CNN is late to this game: long-term Contention readers may remember that we covered this very topic back in December 2020. Put simply, there are countries that would benefit from the dollar’s fall, and these countries have a growing amount of money. This is an existential risk for the current monetary regime. 

China, of course, is at the center of this movement. Few -- if any -- nations have managed to move from low-income status into fully industrialized, near-middle class economies while maintaining full military and political independence from the United States and its allies. Not only has China pulled off this feat, but the United States has become the one dependent upon Chinese industry. The Americans must undertake an arduous, years-long effort to “decouple” from the People’s Republic before it can fully flex those military and economic muscles. This period is a perfect one for China to use its growing industrial might to land some blows against the dollar system, giving itself a fighting chance in the conflict to come. 

The decoupling has already begun,and the recent hand-wringing about the dollar follows news that China has moved some international transactions from the dollar to the yuan: