The role of the U.S. dollar in global trade is set to diminish over the next decade, according to economist Jeffrey Sachs. Speaking at the Annual Columbia China Summit, Sachs cited a few factors for the decrease in the dollar's dominance. These include its use as a political weapon by Washington and the introduction of currencies like the digital yuan. Sachs also pointed out that the international payment system is currently based on the dollar, with up to 60% of foreign trade settlements conducted or denominated in the U.S. fiat, and around half of currency reserves based on it.
However, with the U.S. turning its currency into a political weapon by confiscating foreign exchange reserves of Russia, Venezuela, and Iran, many countries don’t want to keep their money in dollars anymore. Sachs believes that the current role of the U.S. currency is largely due to the dollar-based commercial banking system. However, in the future, payments are going to be settled through central bank digital currencies (CBDCs).
Sachs is convinced that digital currencies like the digital yuan will eventually become an international payment system for cross-border settlements. He also remarked that Russia, China, Saudi Arabia, India, and South Africa have been looking for alternative payments as they don’t want to use the U.S. dollar-based banking system. Sachs predicts that the role of the renminbi, the rupee, the ruble, and other currencies will increase in the future, while the role of the U.S. dollar will diminish.
Overall, Sachs's predictions point towards a future where the U.S. dollar plays a smaller role in global trade and finance. The introduction of digital currencies and the weaponization of the dollar by the U.S. government are just some of the factors leading to this change. As other countries look for alternative payments, the role of the U.S. dollar will naturally decrease, and the role of other currencies will rise.
