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The Struggle for Currency Supremacy

The question of whether the US dollar will be dethroned by a cryptocurrency, a stablecoin, or some other digital asset or payments system ultimately misses the point. What really matters is the mix of possible alternatives that today's evolving financial landscape will offer to governments pursuing a geopolitical advantage.

LONDON – A combination of geopolitical tensions and aspirations for economic autonomy is motivating Russia, China, the European Union, and others to move faster to establish new currency and financial systems. These developments naturally raise questions about the US dollar’s central role in global trade and finance – questions that necessarily implicate the future of the existing international order.

The impact of geopolitics on currency markets is clear. Safe-haven currencies like the Japanese yen are showing significant gains, whereas the status of the Russian ruble remains uncertain. In emerging markets like Turkey, erratic policies and abrupt policy changes are sustaining considerable currency volatility. And, of course, America’s own internal economic challenges are major variables to watch. A failure to manage its high national debt and political strife could lead to a decline in global confidence in the greenback.

While developments in Asia, the Middle East, and Eastern Europe have been dominating the economic discourse and driving currency dynamics, there is nothing new about significant exchange-rate movements following major world events. What is new are digital assets, which are further complicating the picture. A particularly concerning trend is the move by countries and entities under the influence of the Communist Party of China (through Hong Kong) to evade the regulatory purview of the United States by adopting digital alternatives to the dollar.