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by 부자일보 Jun 16. 2023

China's Economic Rise

The US dollar has been widely used as the central currency of the global economy for a long time. However, recently the US dollar seems to be experiencing a significant decline in value worldwide.

From Seeking Alpha

In addition, the United States has faced difficulties in debt ceiling negotiations this year. It is an event that occurs regularly, like a pilgrimage. However, the attitudes of neighboring countries have changed compared to before.

To become a world currency, a world currency country generally needs to run a deficit. In other words, it needs to import cheap goods domestically and release dollars globally.

Naturally, domestic industries suffer because of the influx of imported goods. One of the reasons for the decline of the automotive industry in Detroit is this policy.

In contrast, the United States has excelled in finance and high-tech industries, and professionals in these fields have earned significant income, unlike in South Korea, where most talents are drawn to the financial sector rather than becoming doctors.

However, the past two decades have been disastrous for the middle class in the United States. As a result, a phenomenon has emerged where grandfathers and fathers, who were Democratic Party members, are gradually supporting the Republican Party.

This phenomenon is called "Trumpism" in the United States. And recently, the protagonist of such events, former President Trump, has even been arrested as the first former president in relation to information disclosure laws.

While in South Korea, one might ask what the big deal is, in the United States, it has become a social issue as the first of its kind.

The United States is in a state of significant political and economic turmoil. Some scholars go so far as to say that the United States is in the midst of a civil war in technical terms.

In this way, the United States is continuously facing economic problems and debt burdens.

As a result, the value of the US dollar is declining more significantly than usual.

Economic uncertainty and debt issues are consistently eroding investor confidence in the United States.

This can result in a weakening of not only the US dollar but also its position as a global hegemon.

Fortunately, recently, the United States has decided to freeze interest rates for the first time in 15 months. However, it is still in a difficult economic situation as it hints at additional rate hikes next year to achieve the target inflation rate of 2%.

In addition, factors other than interest rates and inflation are accelerating the decline in the value of the US dollar.

Digital assets such as Bitcoin have been steadily growing in popularity over the past few years.

Digital assets operate independently of the globally recognized economic system. Due to its decentralized nature, Bitcoin, despite its high volatility amidst the decline of the US dollar, is maintaining its value.

As a result, some investors are preferring digital assets like Bitcoin over the US dollar.

In particular, as US interest rates rise and investing in interest rates loses its appeal, the instability of the financial system is increasing. In such a situation, Bitcoin is perceived by investors as an asset that provides stability in a different sense.

China has recently experienced a sharp increase in youth unemployment. However, it is still growing rapidly economically and is gaining significant influence globally. This is an important factor challenging the global dominance of the US dollar in its competition with the United States.

China's industrial sector has gained competitiveness on a global scale, weakening the competitiveness of other countries, including the United States.

In particular, China's recent achievement of having 40% more AI-related research papers than the United States, making it the world leader, has shocked the world.

In this way, China's growing economic influence in various fields is challenging the global status of the US dollar.

China is making efforts to expand the international use of the Yuan. The internationalization of the Yuan can significantly weaken the dominance of the US dollar.

Especially, other countries that are deepening their economic relations with China are expected to use the Yuan more. Among them are Russia, Mexico, Brazil, and others.

The decline of the US dollar affects international trade practices. More countries are showing a movement to use currencies other than the US dollar for international transactions. This can weaken the dominant position of the US dollar and increase the diversity and flexibility of international trade.

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Reference

https://seekingalpha.com/article/137051-the-dollars-20th-century-decline

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