De-dollarization cycle erodes greenback power

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De-dollarization will be a vicious cycle as hyperinflation leads to higher rates that will further erode the greenback’s power, think tank says

The use of the US dollar as a reserve currency is under threat — and the greenback is headed for a vicious cycle that will further erode its dominance, according to the Australian think tank the Lowy Institute.

That’s because the declining use of the dollar could lead to hyperinflation, which would, in turn, lead to higher interest rates as central banks combat high prices. And those rate hikes will weigh on asset prices like stocks, researcher Michael Roach said in a recent op-ed for The Interpreter, a publication run by the think tank.

This outlook is furthered by speculation that BRICS nations could potentially launch a rival currency to the US dollar, backed by gold, Roach said, though such plans have been disputed. Nations like China, Russia, and Saudi Arabia have also started to shift away from use of the dollar in global trade, which could further weaken the dollar’s dominance.

Meanwhile, the US Dollar Index, which weighs the greenback against a basket of other currencies, has declined 4% over the last year, signaling the dollar’s decline in purchasing power. Interest rates in the economy are also at their highest level since 2001 as the Fed continues to monitor high inflation.

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