The same month, Brazil and China entered into a preliminary agreement to trade in national currencies instead of US dollar. In May 2023, South Korea and Indonesia signed a memorandum of understanding to promote bilateral trade in national currencies, moving away from the US dollar as an intermediary.
China and Russia are trading in their own currencies. Beijing and Brazil have also dropped the dollar in bilateral trade. The UAE is selling China its gas in yuan, through a French company. Southeast Asian nations in ASEAN are de-dollarizing their trade, promoting local payment systems.
Chinese Yuan to Replace US Dollar as World's Reserve Currency, Says Russian Banker. Russia's second-largest bank's chairman says there is every reason to expect the Chinese yuan to replace the U.S. dollar as the world's main reserve currency.
For the U.S., it would likely mean less access to capital, higher borrowing costs and lower stock market values, among other effects. Having the world's reserve currency has allowed the U.S. to run large deficits in terms of both international trade and government spending.
However, it is unlikely to replace the US dollar as the world's reserve currency in the near term for several reasons: Political fragmentation: The European Union (EU) is a political and economic union of 27 member states, each with its own national interests and priorities.
1. Kuwaiti dinar. Known as the strongest currency in the world, the Kuwaiti dinar or KWD was introduced in 1960 and was initially equivalent to one pound sterling. Kuwait is a small country that is nestled between Iraq and Saudi Arabia whose wealth has been driven largely by its large global exports of oil.
As of 2022, it is currently the sixth most-traded currency in the foreign exchange market and also the seventh most-held reserve currency in global reserves.
If the dollar collapses, your 401(k) would lose a significant amount of value, possibly even becoming worthless. Inflation would result if the dollar collapsed, decreasing the real value of the dollar when compared to other global currencies, which in effect would reduce the value of your 401(k).
Drawbacks of Reserve Currency Status
Low borrowing costs stemming from issuing a reserve currency may prompt loose spending by both the public and private sectors, which may result in asset bubbles and ballooning government debt.
Visitors from abroad will find the prices of goods and services in America more expensive with a stronger dollar. Business travelers and foreigners living in the U.S. but holding on to foreign-denominated bank accounts, or who are paid incomes in their home currency, will see their cost of living increase.
The yuan remains at less than 3% of global currency reserves, and it's very unlikely it'll grow past the dollar, which remains at about 60% of the reserves.
Australian Dollar to US Dollar Long-Term Forecast
Looking further ahead, Westpac is forecasting an AUD/USD exchange rate of 0.76 by June 2024 and NAB is predicting AUD to be 0.78 to the US dollar by June 2024.
Kuwaiti Dinar (KWD)
The Kuwaiti dinar is the strongest currency in the world, with 1 dinar buying 3.26 dollars (or, put another way, $1 equals 0.31 Kuwaiti dinar). Kuwait is located on the Persian Gulf between Saudi Arabia and Iraq, and the country earns much of its wealth as a leading global exporter of oil.
Monthly forex reserves in 84 countries and territories worldwide 2023. Of all the countries in the world, China had, by far, the largest international reserves in 2022, with 3.46 trillion USD in reserves and foreign currency liquidity.
The Iranian Rial currently ranks as the lowest currency in the world in terms of its exchange rate with the US dollar.
As much as we believe it is unlikely that the U.S. dollar will lose its position on the global economic stage, even if it were to be displaced, the implications may not be as dire as currently anticipated. Before the U.S. dollar became the primary reserve currency, the British pound filled the role.
Other IMF analysis notes that the dollar is the dominant reserve currency by default. The absence of an alternatives to the safety of dollar-trade invoicing, international funding markets, and the large supply of guaranteed Treasury bonds suggests that the dollar's role in the global economy is secure.
It's not a likely outcome at all in most countries around the world, and that's particularly true for the United States. This is down to the U.S. dollar's status as the global reserve currency. So while technically the U.S. dollar could collapse, the chances of that happening any time soon are incredibly slim.
If the dollar collapses what will gold be worth? According to Peter Schiff, the CEO and chief economist of brokerage firm Euro Pacific in an article from Capital, in the event of a loss of faith in the US dollar and rampant inflation, the value of gold could skyrocket tenfold, reaching $20,000 (£15,170) per ounce.
The rise of BRICS and China's Yuan as alternative reserve currencies, coupled with concerns about America's mounting debt levels and geopolitical risks are all contributing to a shift away from the dollar. It remains to be seen how long the US dollar is able to hold its reserve currency status.
There are three main reasons for the forecast poor performance of the Australian dollar against the US dollar (AUD/USD), according to CBA head of international economics Joseph Capurso. These are commodity prices, China's post-pandemic recovery and interest rate differentials.
Japan and Korea are top choices from an Aussie dollar perspective.
Currency is backed by the central bank, which eliminates any risk of default.