The Dollar Suffered its Largest Monthly Decline in Decades in July
The dollars decline against other currencies in July might be insinuating that America's recognition as the global leader is falling, according to The Economist.
In July, the US dollar fell by 4 percent against other major currencies, the largest monthly decline in a decade. The value of the Euro, Bitcoin, and gold soared. However, no one seems to be batting an eye as the value of the dollar fell, probably because of the current economic environment. It does bring to question that the world may not be as stable as pre-pandemic conditions showed, despite the certain resurgence of the US economic might.
The US dollar has been the reserve currency for the world for some time now, but the resume backing that currency isn't what it used to be. Less monetary stability and open financial markets are key metrics in determining the status of the reserve currency that serves as the backing for global trade. The US has seen its share of global GDP and trade fall, and China has taken the throne for the most exports globally. The country's public debt and dubious governmental action have increased volatility.
Talks have started about the Euro or Yuan eclipsing the dollar and taking the reigns as the world's reserve currency. The last time something of this nature occurred, the dollar eclipsed the sterling. Other currencies have challenged the dollar in the past but ultimately failed as rivals failed to realize the strength of America. American politics in the spotlight seem dysfunctional but are significantly more effective than the European system or authoritarian China.
Geopolitics also play a vital role in determining the role of the dollar in the global economy. The dollar is not really threatened by the Euro or the Yuan, but America's unpredictability in its alliances and institutions. These alliances and institutions were the foundation for the world over the past 70 years, but the new era of President Trump's economic nationalism has alienated even the closest of allies. COVID-19 has only made matters worse.
If the US were to lead a reinvigoration of global trade, it could cement the dollar in its role and eliminate all opposition. A hostile and nationalistic approach could lead to the dollar seeing the end of its long run.