Recently the US dollar has been referred to as the largest financial terrorist by Kotak Bank CEO Uday Kotak. It seemed inevitable that such a remark from one of Asia’s most prominent and successful bankers would go viral, and it did. Kotak also emphasised via a tweet that his wording was unintentional before the compliments and abuse could start. It was unclear if he felt bad about what he said.
At least from the vantage point of the tall platform, the term “terrorist” cannot and should not be used carelessly. Kotak said that he wanted to draw attention to the excessive influence that the US dollar wields as the main reserve currency of the globe. That, however, misses the point that none of the 145 nations holding dollar reserves are forced to store their reserves in US dollars, least of all in the event of a terrorist attack. They are acting on their own free will. The majority of the world’s reserves, which total around 13 trillion dollars, are stored in securities denominated in dollars. China has the largest stockpile of dollars, and it and the US are at odds in the technology sector. Euros make up another 20% of the world’s reserves. Analysts are talking about finding an alternative to US Dollar following what what happened during Russia-Ukraine conflict.
Dr Ajit Ranade, a noted economist is of the view that the US currency is at its highest point in fifty years. Due to rising import costs, those nations whose imports are billed in dollars are under pressure. As a result of rising commodities and energy prices, which are also expressed in US dollars, their already high inflation rate is increased further. The cost of debt payment has increased as the currency has strengthened, which is also bad news for nations with dollar-based foreign debt. The dollar is strengthening as all of the world’s capital flows upwards towards America from less developed nations. That is as a result of the US government bonds sharply increasing. US bonds provide investors a secure location to keep their money during economic downturns.
Ranade also adds that not only do many nations maintain the majority of their foreign exchange holdings in dollars, but they also invoice their commerce in dollars, which is a huge abnormality. For instance, the commerce between China and India is close to 120 billion dollars, and the invoices are virtually entirely in dollars. 85% of India’s exports are invoiced in dollars even though only 15% of them are sent to the US. The US dollar thus enjoys hegemony as both the main reserve currency and the preferred currency for invoices between any two unrelated trading partners.
Whether circumstances force dollar to weaken or not is a time tested choice which the global community will witness but at present there are no symptoms of it being irrelevant to many economies.