中文
This is an editorial from China Daily.
As more and more major economies face challenges from inflation and capital outflows, the cyclical challenges posed by the "dollar tide" in developing countries are once again sparking international discontent. The outflow of the dollar and the US-led sanctions on Russia are prompting countries to re-recognize the US dollar hegemony.
After the Cold War, the United States maintained a deficit in its current account balance and encouraged other countries to buy its Treasury bonds by taking advantage of petrodollars and the status of the dollar as East Asia's trade currency. This cycle formed Bretton Woods 2.0 and established the global role of the dollar.
The Fed's monetary policy has long had a "tidal effect" on global dollar liquidity as it has cyclically shifted between easing and tightening in response to its own economic problems. When policy is loose, emerging economies may overheat; austerity can create debt defaults and economic crises in developing countries.
Developed countries are generally less affected because they finance themselves in their own currencies, such as euro, the pound and yen. These countries have sizable trade surpluses and enough foreign exchange reserves to weather shocks.
Since the beginning of this year, multiple factors have exposed the Bretton Woods System 2.0 to fundamental challenges. After the outbreak of the Ukraine conflict, Western countries imposed severe financial sanctions on Russia, including freezing its foreign exchange reserves. The weaponization of the dollar has aroused the concerns of other emerging market countries, and dedollarization, which used to be a marginal idea, has now become a serious policy consideration of them.
There is no doubt that geopolitical risks, cyclical liquidity risks and inflationary crises created by the dollar system have emerged at the same time, with dire consequences. Moreover, the US' own over-indebtedness and stagflation also damage the long-term credibility of the dollar. This has led some emerging economies to reassess the role of the dollar.
The US' weaponization of the dollar and trade, along with its disregard for dollar credit, has encouraged more developing countries to keep their distance from the US, giving Washington an incentive to build a new system.
The US is calling on its allies to rebuild the supply system of energy and commodities, including restricting the supply chain network to allies and friendly countries, which is part of its efforts to maintain the Bretton Woods System 2.0. The US' efforts to maintain that system will be a long and unpredictable slog on both sides of the divide if there is a big separation trend away from the dollar.
