In 2009, after the meltdown in US mortgage securities
triggered the biggest financial crisis since the Great Depression, China’s
central bank chief of the time issued a high-profile call to move the
global financial system away from the dollar.
Fifteen years later, it continues to reign supreme — having weathered the launch of trade wars under Donald Trump’s administration and a welter of US sanctions on other countries that showcased the risk, for some nations anyway, of keeping assets in dollars. The greenback remains the main currency of choice in global reserves and massively dominates the foreign-exchange market.
Multiple stewards of US economic policy over decades have
highlighted the importance of democratic, transparent governance and respect
for the law in underpinning the dollar’s role. A violent attempt to
disrupt the transfer of power occurred in the wake of the last election, and
had little impact on markets. But further instances could have consequences,
some warn.
“You can’t be complacent around any of these
things” with regard to the dollar, Robin Vince, CEO of BNY Mellon
— one of the world’s largest custodians of financial assets — said in
an interview last week. “As is the case with many tipping points, you don’t
quite know when you’re approaching it until you go over the other side.”
Thierry Wizman, a three-decade Wall Street veteran,
said “the American exceptionalism narrative could end if traders lose
faith in US institutions.”
“The way that could happen in the next few weeks is if we
have an election without a definitive result for several weeks, and where
people can’t trust the institutions to adjudicate any of these
disputes,” said Wizman, a global currency and rates strategist at
Macquarie.
Courtesy: Bloomberg
