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3 reasons why the US dollar’s supremacy will continue

By: Invezz

Recently, a hot topic in financial markets sparked traders’ imagination. That is the demise of the US dollar and the inevitable collapse of the world’s reserve currency status.

Even the famed investor, Stanley Druckenmiller is betting heavily against the greenback. The same can be said for cryptocurrency investors and hodlers, who believe that a new financial order will be based on digital currency approaches.

All of the above may happen in the future. But right now, the dollar’s place in the world’s financial system is solid as a rock.

Betting against the dollar is risky for at least the following reasons:

  • The gap between the US and European economies increases
  • The United States is the largest oil and gas producer
  • US companies dominate the technological landscape
The dollar is a reflection of the strong US economy

It is said that a currency should reflect the economic reality of the country or region it represents. In this case, the dollar should reflect the shape of the US economy.

Like it or not, the US remains the largest economy in the world. From this position, it can generate economic growth or trigger recessions in other parts of the world.

In 2008, before the Great Financial Crisis, the US economy was slightly smaller than the European ones (UK included) – $14.7 trillion vs. $16.2.

But since then, the US economy has grown to $25 trillion, whereas the EU and UK economies combined are less than $20 trillion.

Hence, the gap with rival economies increases, and the dollar should be the first to reflect it. 

The shale oil revolution made the United States the largest producer of oil and gas in the world

Technological advances in the shale oil industry resulted in the United States becoming the world’s largest oil and gas producer. With a 20% share of the world total, the United States is in a position to export energy, a big plus for economic growth.

Moreover, because oil is traded in US dollars, it is another incentive to bet on the dollar’s future.

US dominates the technological landscape

Finally, US corporations dominate the international technology sector. The largest seven tech companies in the world are from the United States, and other countries barely compete.

Technological advances and capital allow producing the same product with fewer resources. America has them both, as is also home to the largest private capital market.

The post 3 reasons why the US dollar’s supremacy will continue appeared first on Invezz.

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