Although the dollar is in decline, the U.S. Federal Reserve’s policy of cheap money and easy borrowing has strengthened the dollar’s dominance in the world economy even as China and Russia have sought to weaken it.
As of 23 October, global entities from Nissan Motor Co. to Manila’s waterworks had sold $1.29 trillion in dollar-denominated bonds, up 21 percent this year from the same period in 2019 and edging past 2017’s record of $1.28 trillion, Bloomberg reported.
The dollar’s share of global funding has reached a 20-year high, according to the Bank for International Settlements, which called the dollar “clearly the dominant international funding currency” in a June report.
There are few alternatives. The euro is weaker and more limited internationally than the dollar, and China’s currency is subject to various government controls. While we forecast it will change as the “Greatest Depression” worsens, at this juncture, no other currency has the strength or global acceptance to rival the buck.
The Fed also expanded dollar swap lines this year with its foreign counterparts to counteract a shortage of dollars for global financing and trade.
Corporations in Indonesia and the Philippines have sold more dollar-denominated bonds so far this year than in any other full year. Indonesia’s financial market is small and by borrowing in dollars, the government did not crowd out other domestic borrowers, Deni Ridwan, the finance ministry’s bond director, told Bloomberg.
Nissan, reeling from scandal as well as sales damaged by the shutdown, found an eager market when it issued dollar-denominated bonds for the first time in decades. The company’s $8-billion September offering was one of Asia’s largest corporate issues on record.
“The dollar markets are the only real source available, so the whole situation builds on itself,” said James O’Neill, former Goldman Sachs Chief Economist and now Chair of the International Policy group Chatham House, in a Bloomberg interview.
TREND FORECAST: As the U.S. debt level continues to historically escalate, the value of the dollar will continue to decline. We forecast China’s yuan will continue to rise over the decades as China overtakes America as the world’s largest economy. Thus, the larger and stronger China grows, it will gain global market share from the dollar and eventually replace it as the world’s top currency.
