Wall Street Journal: The Dollar May Be Knocked off Its Pedestal

Article by Sahil Mahtani in Wall Street Journal

Will the U.S. dollar soon lose its status as the world’s pre-eminent currency? The consensus is no—it’s said that any move away from the dollar would take decades. This view is too complacent.

Developments in foreign-exchange markets during the past 18 months point toward de-dollarization.

Consider that Chinese “petro-yuan” crude-oil futures, launched last year in Shanghai, now sit right behind Brent and West Texas Intermediate in trade volume. The world’s central banks bought more gold last year than at any time since President Nixon took the U.S. off the gold standard in 1971.

Markets recently learned that China added gold to its reserves for the fifth month in a row. Earlier this year, the U.K., France and Germany created a new payment-processing system to permit payments to Iran. It will begin quietly with humanitarian aid, then move to other goods and services, potentially competing with the American-influenced Swift system.

The increasing use of economic sanctions under Presidents Obama and Trump is the immediate cause of de-dollarization. In European finance, few have forgotten the $8.9 billion fine meted out to French bank BNP Paribas in 2014 for violating U.S. economic sanctions against Iran. It’s not that surprising, or even that significant, when Russia shifts $100 billion of dollar-denominated reserves into Chinese yuan, euros and Japanese yen, as it did last year. But the change in posture among the trans-Atlantic democracies is noteworthy. At his final European State of the Union address, European Commission President Jean-Claude Juncker said: “It is absurd that European companies buy European planes in dollars instead of euros.”

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