The dollar is a symbol of the strength of the United States and one of its causes. Its strength is the result of factors of American pride, and at the same time it reinforces the elements of American strength. The strength of the green currency comes from several factors as follows:
1- Economic factors
- The size of the wealth, natural and monetary reserves, and assets owned by the United States.
- U.S. production capacity, export capacity, and trade balance position.
- The attractiveness, size, depth, openness, transparency, and availability of information of the US financial markets.
- American dominance over the financial system and global trade.
- The world’s most traded commodities, such as oil, are linked to the US dollar.
- Sustainability and strength of demand for the dollar.
- Ease of buying and selling dollars against other currencies.
- Pegged to the dollar, as more than 60 countries in the world peg their local currencies to the US currency.
2- Political and geopolitical factors
- The efficiency of the American administration, and internal societal cohesion.
- The level of US political dominance represented by its ability to impose its foreign policy agendas on the world.
- Military power and geopolitical dominance.
- The cohesion of the global system as it was formed following the collapse of the Eastern bloc in the 1990s.
3- Power of the model
- The superiority of the American model economically, politically, culturally and civilizationally.
- Harmony between model and practice.
These factors are linked by a dialectical relationship. While economic factors are considered the basis for political and geopolitical factors, the strength of the latter positively affects the former, and together they determine the strength of the dollar.
This relationship is also not one-way, as the decline in the strength of the dollar negatively affects economic, political and geopolitical factors, and vice versa.
But this cycle of mutual support in a dialectical way began to decline two decades ago, with the decline of all the factors on the basis of which the dollar gains its strength, as follows:
First: Internal factors
The United States is suffering from multiple and worsening internal crises that together point to the absence of societal justice and the erosion of the democratic model.
The persistent inflation crisis, coupled with the high national poverty rate, continues to limit the competitiveness of American products, leading to a decline in exports and a rise in foreign imports, resulting in a persistent and cumulative imbalance in the trade balance.
This situation leads to a decrease in revenues and difficulty in meeting external and internal financial and credit obligations, and also leads to the continued rise in housing costs, which has affected the number of homeless people in the United States, which reached record levels for the year 2023 after recording about 650,000 homeless people, 28% of whom are families with children.
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economic disparity
A Human Rights Watch report indicates that despite some economic reforms implemented by the Joe Biden administration, the powers granted to each state individually to enact local laws and legislation have limited the impact of the reforms, indicating a crisis in the American political structure that is casting a shadow over the economy.
Economic inequality and the racial wealth gap continue to grow. For every dollar of wealth for white families, there are 24 cents for black families and 23 cents for Hispanic families. Racial disparities in access to adequate health, nutrition, education, employment, and housing are evident at nearly every point of contact with the justice system, and they put millions of women of color at risk, especially as laws restrict access to reproductive care grow.
The income inequality index records high levels compared to other rich countries, as the richest tenth of the population receives nearly half of the total income, compared to 13% for the poorest half, whose ownership of private wealth in the country does not exceed 1.5%.
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Increased detention rates
The United States has the highest incarceration rate in the world, with about two million people in prison, plus millions more on parole and probation, and a much higher proportion of black prisoners than their proportion of the population.
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Child labor
Exemptions in U.S. labor laws allow children as young as 12 to work in agriculture (the sector with the highest rate of child labor deaths), and 2023 saw a sharp increase in child labor violations, with most of the children being unaccompanied immigrants working in dangerous and exploitative conditions. Meanwhile, the rate of drug overdose deaths continues to rise, reaching a new record high of more than 111,000 last year, with racial disparities in overdose deaths.
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high polarization
The threat to democracy continues to grow, as lawmakers continue to ban books, pass laws that restrict free discussion in classrooms, and censor inspiring stories of ordinary citizens who successfully organize to advance human rights, and military support continues to be provided to countries that violate human rights.
Indicators of a peaceful and smooth transfer of power are declining, as happened on January 6, 2021, when groups of rioters stormed the US Capitol building (Congress building) in support of Trump’s plan to overturn the election results, and polarization is increasing as the presidential election approaches, especially with Trump’s statement that the country will drown in a bloodbath if he is not elected.
Second: External factors
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On the economic level
The United States is gradually losing its position as the world’s leading economic power over the years to China and a group of other countries, as the share of American production in the world’s gross domestic product declines and its value declines compared to China’s gross domestic product, and this is accompanied by a decline in the United States’ position globally in terms of innovation and invention.
The dollar’s share of international reserves has been in steady decline for two decades since the United States began its alleged war on terror and imposed economic and financial sanctions on the grounds of “terrorism.” The use of the dollar as a punitive tool has prompted many countries and entities to seek alternatives to the dollar after realizing that their high dependence on the dollar places them and their policies hostage to American interests.
The decline of the dollar as a global currency can be read through the following:
- Growing European trends at the state and EU levels towards strengthening independence from US foreign policies and reducing dependence on the dollar.
- The global trend towards concluding non-dollar international deals is growing, such as the implementation of the first deal between China and the UAE in Chinese yuan, deals between Malaysia and India, Russia and India signing non-dollar oil deals, Brazil and China agreeing to abandon the dollar, and Russia and China agreeing to exchange oil in local currencies.
- Malaysian PM proposes setting up Asian Monetary Fund to reduce dependence on dollar
- Growing power of the group (brix) The level of cooperation between its members, its plans to issue a new currency and expand its membership.
- Saudi Arabia’s openness to breaking away from the petrodollar model and starting to sell oil in Chinese yuan.
- The use of the dollar in global currency markets has declined, as confirmed by a report issued by JP Morgan at the end of August last year.
- The dollar’s share of global reserves has been falling steadily for two decades, according to IMF data.
- The growth of digital currencies and the global trend towards them, as 90% of the world’s central banks are working on or discussing the issuance of digital currencies.
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On the geopolitical level
US hegemony faces simultaneous geopolitical challenges on several fronts: the front with Russia in Ukraine, the front with China in Taiwan and the Indo-Pacific region, the front in the Arab world and the region with the Palestinian resistance, and the fronts of support and the continued escalating Iranian threat to US influence in the region.
In the African continent, American hegemony and strategic interests are declining with the growing African trend towards sovereignty over resources and getting rid of the legacy of colonialism. It seems that American hegemony is taking a declining trend, which directly affects the strength of the dollar and its position as a global currency.
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At the global system level
After World War II, an international system emerged governed by international institutions, systems and laws that contributed greatly to strengthening the hegemony of American imperialism and its allies. After the collapse of the Eastern Bloc, the United States assumed global hegemony in what was known as the unipolar system. However, this system, which formed the global incubator environment for the expansion and hegemony of the United States and driven by the rise of new international and regional powers, began to disintegrate in favor of the formation of a new multipolar system, which means a decline in the levels of US global hegemony economically, financially and geopolitically, and threatens the influence of the United States in international institutions. The disintegration of the global system will directly lead to a decline in the strength of the dollar.
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At the level of global expectations
With the growth and dominance of financial capital and stock market and securities economies at the expense of productive economies, the future expectations of investors and major players have become a fundamental determinant of current economic indicators. Taking into account the factors described above, the expectations of major players tend to assume a decline or collapse in the strength of the dollar in the future, which prompts them to make immediate investment decisions that do not bet on the strength of the dollar. Consequently, the expectation of a decline in the strength of the dollar in the future contributes to weakening its strength in the present.
The most likely scenarios for the collapse of the dollar
The gradual and accumulated rise of the indicators of the decline in the strength of the dollar continues, and two main factors will play a decisive role in the collapse of the dollar, one internal and the other external, knowing that these two factors affect each other:
1- External: A clear defeat on one of the main geopolitical fronts.
2- The United States’ failure to meet its financial and credit obligations and the debt ceiling crisis.
A study by the Bipartisan Policy Center indicates that the US Congress’s handling of the issue of raising the US debt ceiling will have a major impact on the strength of the dollar globally. If the debt ceiling is not raised sufficiently, the US will default on its financial obligations, leading to a catastrophic downgrade in the credit rating and prompting investors to sell their US assets and switch to other, safer currencies, accompanied by a shock of widespread unemployment and higher borrowing costs, as confirmed by US Treasury Secretary Janet Yellen.
President Joe Biden signed a bill in December to raise the debt ceiling by $2.5 trillion, and about a month later the Treasury Department exhausted the new ceiling and resorted to exhausting emergency borrowing powers. If the debt ceiling is not raised again, the Treasury will reach the point of default.
The study expects the first default to occur between the summer and fall of 2024, a date that will be decisive in the decline of US power in the face of geopolitical challenges. If the debt ceiling is raised, this will exhaust the US economy, accumulate already high public debt rates, decline income rates and purchasing power, and increase poverty and unemployment rates.
The dollar crisis appears at a time when the United States is finding it difficult to fulfill its foreign imperial obligations towards its allies and on the front lines with its enemies.
