The dollar is still almighty. But China and Brazil have taken a baby step towards changing that.
Leaders of the two countries have agreed to try to price trade between them in their local currencies — the real and renminbi. If they can pull that off, it would weaken the greenback’s global hegemony.
The US may be the world’s largest debtor, its monetary policy may be reckless and its trade deficit still too high for comfort. But the US retains what economists call the “exorbitant privilege” of borrowing in its own currency. And the dollar remains the reference currency for everything from the price of oil to international comparisons of GDP.
Convention helps keeps the US special. A generation ago, the country was the undisputed economic, political, military and cultural leader of the world. The US has been downgraded, but habits — both turning to Washington for the final word and thinking in dollars — die hard.
If the real-renminbi movement gets off the ground, it would break with one part of that tradition. But the shift won’t be easy so long as the standard global price for all commodities is set in dollars.
Moreover, the US has the sway that comes with owing painfully large amounts of money. Lenders’ acceptance of the US’s privileged exorbitance has become even more supine thanks to what might be called the peculiar arrangement: Creditor nations keep up employment at home by helping US consumers pay for imported goods. Forcing the customer to take the currency risk might jeopardise that handy support.
These twin forces — tradition and the weight of debt — mean the dollar era won’t come to an end right away, even if the Brasilia-Beijing trade currency initiative works out.
But this initiative follows a series of official and semi-official Chinese grumbles about the dollar’s value. The non-dollar world is getting increasingly restless. Perhaps the other two “Bric” currencies, the Russian rouble and Indian rupee, could join in to create a “Four Rs” currency block. The post-dollar world may be slow in coming, but it will come.
