The United States was once the biggest economy in the world, but recently cracks have started to appear. The most noticeable issues are America's increasing debt load and a potential trade war with China. There are also concerns about a lack of overseas interest in the United States treasury. This contributes to mounting concern that the world could be moving away from the United States Dollar and towards a new cryptocurrency backed by Russia and China. In examining these issues closer, one can see why the current situation is concerning investors. Then it is possible to see how these situations may affect the future of the United States Dollar.
The first problem faced by the United States is the amount of debt that the country is accruing coupled with the lack of overseas interest in the dollar. As US debt continues to rise, overseas investors have lost interest in purchasing bonds, with foreign treasury ownership decreasing by almost ten percent in just six years. This means that the American banks need to purchase more treasuries. If this situation continues, the United States could be at risk of an economic slowdown. This has the potential to develop into a negative cycle, as a slowdown would further lower the levels of investment into the United States. These problems could be accentuated if China decides to weaken the treasury as part of a trade war. To reduce America's exposure to China, the United States government needs to get their deficits under control to help ease the pressure on the treasury. However, there is another problem on the horizon that has the potential to cause even more damage to United States Dollar. The potential of Russia and its allies creating a new cryptocurrency payment system.
Cryptocurrencies have been revolutionising the way people purchase items. However, there is currently no way for countries to pay each other without using either SWIFT or Fedwire, both of which are controlled by the United States. Russia has recently been purchasing gold, increasing their reserves by 1,400 tons in ten years. This has fuelled speculation that they could be creating a new cryptocurrency that will be backed by gold. It’s believed that Russia is doing this to create a new alternate payment system that would eliminate dependence on the United States Dollar. If this does occur, the United States Dollar will be weakened even further. In addition, it will give countries like North Korea a way around sanctions imposed by the United States government. For this reason, countries like China, Turkey and Iran are all very interested in this new payment system and will be eager to support it once it becomes active.
The United States Dollar is the biggest currency in the world. Although, a combination of decreasing foreign interest in treasury and a new cryptocurrency from Russia both threaten this. How the United States will handle these challenges is unknown. However, if they don’t take any action they will be weakened as the world continues to move away from the United States dollar.