Analysts at financial giant JPMorgan say increased geopolitical tensions between the two largest economies would take the threat of de-dollarization to the next level.
JPMorgan strategists warn that escalating tensions between the US and China would result in the erosion of the dollar’s market share in global reserves and trade settlements, reports Bloomberg.
The analysts also say that rising competition between the powerful nations could give birth to a new Cold War.
“If tensions between the United States and China intensify and we get more global fragmentation which would likely lead to deglobalization in trade and finance… In finance, it could also lead to de-dollarization.”
Another factor that could put the dollar’s supremacy at risk is political issues, which JPMorgan analysts say may prevent the government from keeping the economy stable during a financial crisis.
Earlier this year, the United States government was facing the threat of its first-ever default as officials clashed over the details of a bipartisan debt ceiling deal. As US politicians kept the deal from happening until the last minute, President Xi Jinping reportedly enacted market-friendly changes in an effort to boost China’s economy.
China’s economic reforms along with the potential easing of its strict capital controls could also diminish the dollar’s dominance, say the analysts.
Although market strategists at JPMorgan are sounding off on de-dollarization risks, they note it is very unlikely that another currency will topple the US dollar off its throne as the world’s reserve currency in the next decade.
Specifically, they see a “partial de-dollarization” taking shape with the Chinese currency eating the market share of the dollar among nations that are not economically aligned with the US.Don't Miss a Beat – Subscribe to get email alerts delivered directly to your inbox
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