part 01
तिथि: ज्येष्ठ शुक्ल नवमी, बुधवार, संवत्सर कालयुक्त, विक्रम संवत् २०८२
The economic cycle that began with Pound as a single reserve global currency, which after World war II was replaced by Dollar as a global reserve currency is seemingly coming to an end sooner than what many economists and experts previously thought of.
As one delve deeper into recent past, delinking of dollar from gold standard in 1971 itself was the clarion call to highlighting fragility inherent to market economy model nurtured by United States.
However, US somewhat successfully postponed the suspicion lingering on dollar at that time by embarking Petrodollar deals with the West Asian1 countries; which allowed global market supply of oil to be transacted in dollars in lieu of US catering to security needs of those kingdoms. In addition, US also forced Japan to ink Plaza Accords in 1985 that provided much needed cushion to USD to remain as a tradable currency because the inflationary pressure on it was somewhat addressed for the significant period that followed the deal. However, it has negatively impacted the Japanese economy and it still faces the issue of stagnant growth since then.
After the disintegration of the USSR in 1991, the European nations (especially the western European bloc) were somewhat freed from their security concerns, therefore they become more inclined towards the economic growth, which was natural as within the scope of the 20th century they witnessed two world wars and a resource crunching cold war. However, the realisation soon came to dawn upon them of over reliance on USA for their security, economic growth and overall development.
In order to reclaim and exercise their sovereign rights as the nation, the European Union was envisioned, which also provided the power of collective bargain, common market and resource pooling and mobilization laying the foundation of inclusive, participative and resilient development framework.
The major reform that EU heralded was the formation of common European currency called Euro. This not only reduced their dependence on USD but also paved way for sovereign economic policies and establishing EU as one of the important pole in global political arena.
USA was sceptic of the growing popularity of Euro vis a vis USD as former was backed by the group of countries which were also a common market with population comparable to that of USA if not more. Thus, it leveraged its global status of “Sole Superpower” with respect to military might, Bretton Woods manoeuvring and hold on energy supply chains, to counter or discredit the Euro.
In Geo-economics its an open phenomenon that during crisis, majority bets on the available Hard currency with perceived future stability prospects and having some sort of credibility.
From 1990-2003, US allegedly fuelled the Yugoslav Wars, further it got Europe involved in the Gulf war, in addition it connived with communist China to purchase US treasury securities in order to maintain the global demand of dollars in return US facilitated China’s entry in WTO . Moreover, it framed its taxation rules in order to promote speculative investment, which inflated the Stock market indices, mainly led by emerging IT companies, which ultimately resulted in Dot-com bubble of 2002.
Moreover, the financial market crisis of Indo-china2 nations during this timeframe also triggered the global natural proclivity towards parking investments in dollar denominated assets. Thus, Euro lost its prominence and it became an appendage to USD thereafter.
Notwithstanding, the temporary relief that USD enjoyed owing to uni-polar world order started to diminish down the line after 20 years. And the dot com bubble crash along with formation of Euro is now termed as the first step towards the de-dollarization.
Henceforth, in the subsequent articles, we’ll examine the causes that are rapidly encouraging multi-currency basket as reserve currency led multi-polar world order from 2030 and beyond.
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