Opinion - Oliver Chapman, CEO of OCI, The UK's No.1 Fastest Growing Company (2022)
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PRESS RELEASE - Comments & Opinion

Is Dollar Hegemony Really Under Threat?

Supply chain expert comments on possible threats to the dominance of the U.S. dollar

    • The ASEAN Summit concludes today, but there is no evidence of an alternative to the U.S. dollar emerging. 
    • Chinese banks have increased their exposure to Russian banks, but this move is unlikely to lead to a significant change in global markets. 
    • A Brazil, Russia, India, China and South Africa (BRICS) currency is a possible alternative. 
    • International Monetary Fund (IMF) Special Drawing Rights (SDR) are the most credible alternative to the dollar.
    • The networking benefits of the dollar are unlikely to change. 

LONDON (September 7, 2023)Oliver Chapman, CEO of supply chain specialists OCI and the fastest-growing company in the U.K. (2022)1, comments on possible threats to dollar hegemony following the ASEAN Summit.

"Another debate has arisen on the potential end of dollar dominance. This time, news of increased exposure by Chinese banks to Russian banks leads to speculation of a potential dollar alternative. 

"It is not hard to see the incentive for an alternative in light of the war in Ukraine; the crippling effects of U.S. sanctions on the Russian economy; and China's fears that its ambitions are being held back by vulnerabilities to American financial muscle. Indeed, a BRICS currency is an interesting alternative. But a closer look at the challenges besetting these economieswhich have all failed to meet the rosy economic forecasts of a few years ago, excluding Indiahighlights the difficulty in a pivot away from the dollar. 

"Maybe we need to go back and look at the beginning. You can probably date the start of dollar hegemony to the Bretton Woods Conference of 1944. 

"But there is an important point concerning this beginning; it took both the disaster that was World War II and a willingness to try something new that let to something approaching a global currency consensus.

"Today, most international trade is conducted through the U.S. dollar.

"And there are advantages to having a currency that most nations are willing to trade with. It simply makes it easier to conduct business between countries. 

"The dollar's initial dominance came about at a time when the U.S. economy was also dominant; Europe itself was re-constructing at the time and Japan had yet to emerge as an economic force. 

"And from this position of strength, a network grew—a network of interconnecting factors that together cemented the dollar's strength. For example, commodities are valued in dollars, international banking hinges on dollars, and approximately 60 per cent of foreign exchange reserves are held in dollars. More to the point, psychology is at play. The dollar is seen as safe, and perception makes it safer still, which means the hegemony is reinforced. 

"It is extremely difficult to change networks, and usually such changes only occur after a severe shock. 

"The last 15 years or so have witnessed two major shocks of this nature—the 2008 economic crash and the COVID-19 crisis, neither of which were sufficient to unseat the dollar. 

"The dollar has certain key benefits: It has deep capital markets, the U.S. itself has well-defined property rights, and there are free capital flows. The Federal Reserve Bank acts as a lender of last resort as well.  

"For emerging markets wishing to raise money, the largest global credit market revolves around dollars, and the dollar itself is a relatively stable currency. 

"For the U.S., dollar hegemony offers certain key benefits, according to what former French President Valéry Giscard d'Estaing called 'exorbitant privilege’.

"The U.S. is the only country in the world which frequently sees its currency rise on the back of disappointing economic news because markets tend to buy dollars in times of insecurity. 

"On the other hand, dollar hegemony has arguably and adversely distorted U.S. economic competitiveness. But will an alternative emerge? 

"China's own economy has deep problems — too much local government debt and unfavourable demographics. The weakness of the Russian and Brazilian economies, coupled with China's economic challenges, probably rules out a BRICS-based threat to dollar dominance.  

"The ASEAN Summit, which concluded today, highlights the level of disunity present in Southeast Asia — a new currency block to threaten the dollar is unlikely to come from there. 

"The South American economy is also probably too small to create a dollar alternative. After all, the euro area economy is larger than the South American economy, which has failed to provide a credible threat to the dollar as well. 

"Maybe Bitcoin or other forms of cryptocurrency will evolve as an alternative, but until these assets see less volatility, they will remain too unreliable to form the bedrock of international trade. 

"Stablecoins are interesting but are often dollar-backed, so they are unlikely to represent a threat to the dollar as well. 

"The most likely alternative to the dollar may ultimately come in the form of a basket of foreign currencies—perhaps akin to IMF SDR—or other cooperative mechanisms by which a pivot occurs.

"Indeed, perhaps the most influential person at Bretton Woods, the economist Keynes, wanted to see trade conducted by a global currency based on a basket of currencies — an idea that became the IMF's SDR. 

"But I stick to my earlier proposition; it will take a major event—something bigger than the COVID-19 pandemic—to upset dollar hegemony."


Photo: OCI CEO Oliver Chapman

About OCI

OCI is a supply chain accelerator, serving governments and large corporates as a procurement partner.

Working capital cycles are at their longest ever, restricting the potential for business growth. OCI harnesses novel solutions and expert logistical knowledge to redesign the supply chains of its clients, freeing capital and fuelling their growth. The company has, since its inception in 2012, achieved a global footprint in the manufacturing, consumables, technology, media and pharmaceutical sectors, resulting in year-over-year growth.


Oliver Chapman is available for interviews and comments.


1 Financial Times (2022). FT1000. Available at: https://www.ft.com/ft1000-2022

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