• JPMorgan strategists issued a de-dollarization alert, saying that US-China tensions are key to the future of the world reserve currency.
• They warned that escalating tensions between the two countries could lead to erosion of the dollar’s market share in global reserves and trade settlements.
• The analysts also noted that political issues could prevent the government from keeping the economy stable during a financial crisis, as well as China’s economic reforms and potential easing of capital controls possibly diminishing the dollar’s dominance.
JPMorgan Issues De-Dollarization Alert
Financial giant JPMorgan has issued an alert regarding de-dollarization, warning that increased geopolitical tensions between the United States and China would take this threat to the next level. Strategists at JPMorgan have said that if tensions continue to escalate between these two powerful nations, it could result in erosion of the dollar’s market share in global reserves and trade settlements.
Risks Of Political Instability
Another factor that could put strain on the dollar is political issues, which may cause instability in times of financial crisis. Earlier this year, there was a close call when US politicians clashed over details of a bipartisan debt ceiling deal, almost resulting in a default for America. President Xi Jinping responded by enacting market-friendly changes in order to boost their economy.
China Easing Capital Controls
In addition, China’s potential easing of strict capital controls could mean further de-dollarization should it come into effect. This move would likely diminish some portion of the greenback’s current dominance over major currencies around the world. Despite this risk posed by rising tension between these two powers however, JPMorgan analysts are confident it is unlikely another currency will replace USD as world reserve currency within ten years time.
Partial De-Dollarization Expected
The strategists predict partial de-dollarisation will occur instead: with Chinese Yuan eating away at USD’s market share among nonaligned economies. This would suggest a gradual loosening rather than sudden displacement for USD’s reign as world reserve currency – albeit one which requires monitoring due to its far reaching implications for international finance and trade relations should it happen sooner rather than later.
Overall then while we can’t be sure how events will unfold over coming months or years – especially given uncertainty brought about by increased tension between USA and China – it seems clear that any shifts towards deglobalisation or ‘partial’ de-dollarisation must be carefully monitored moving forwards if we are to gain insight into future implications for our markets and economies alike.