Jason Simon explains how the US dollar’s dominance in global trade is wavering

For around 60 years, the US dollar has been the main source of currency used for international trade. This developed following the end of World War II and, since then, the US has been able to exert virtual unabated control over monetary flows. However, this is changing and Jason Simon, an expert in FinTech and monetary policy, explains what is going on and why the US could lose its position.

For the past almost five decades, the US has had control over financial transactions virtually everywhere in the world. Some reports indicate that as much as 88% of all global trade is conducted through the dollar. No one else is remotely close to having that level of control. This means that, even if a consumer in France is buying a product from Brazil, there’s a good chance that it will still be transacted through dollars and, hence, goes through the US financial system.

One of the main reasons the US has been able to maintain control is because it emerged as the most stable country following World War II. This allowed it to take a commanding position and dictate a lot of the monetary policies that were being implemented as Germany, the UK, Italy and other countries rebuilt themselves. However, the way the system was established made it possible for the US to control the financial channels. Explains Simon, “When the dollar emerged as the dominant currency following World War II, the US established a precedent that essentially required all transactions, regardless of origin and destination, to pass through the Federal Reserve. As a result, the US claimed it had legal authority over those transactions, which it has exerted numerous times through sanctions.”

Sanctions have been implemented against Iran, Iraq, Russia, Nicaragua and many more, all designed to prevent criminal activity. However, options are now emerging that allow these countries, and others, to bypass the US controls and improve their economies. India and Iran, for example, have a system in place to support trade, and Iran is also working with the European Union to develop similar alternatives. The US has tried to prevent these new relationships, but ultimately doesn’t have the authority to stand in the way.

What these new relationships mean is that the US dominance is going to continue to falter as countries look for alternatives. “The US is concerned about losing its position as the dominating currency; however, the changes have already begun. Countries are actively looking for ways to bypass US-led controls and this search is beginning to produce results. One of the more prominent alternatives may very well be cryptocurrency, which completely strips away the need for central banks. The next few years are going to bring a number of unexpected changes to the global trade industry.”