The long hegemony of currency

September 9, 2020

What happened?

As the U.S. dollar has fallen to a two-year low against the euro, there is more and more speculation about the future of the dollar as the global reserve currency. Currently, the discussion is largely based on financial and economic calculations. However, when taking a historical perspective, a clearer picture emerges. The history of hegemony points to the likely future dominance of the U.S. dollar, but leaves room for the emergence of alternative financial ecosystems.

What does this mean?

Financial dominance is the final phase of hegemony, but it lasts for decades. By comparing several elements of hegemony (e.g. military, trade, innovation), Ray Dalio has shown that the power of the global reserve currency is something that outlasts all the other elements of hegemony by a multitude of decades. We have also noted how the Hegemonic Cycle has repeatedly shifted from a phase of “material expansion” to a phase of “financial expansion” of the global economy. Hegemony ends when the hegemonic currency loses its status as the global reserve currency, but such a shift takes a very long time.

What's next?

Although the dollar is highly likely to remain the global reserve currency for the foreseeable future, other countries, led by China, will build an alternative financial ecosystem. For instance, China’s alternative to SWIFT (the dominant interbank system controlled by the U.S.) is gaining significant momentum. Meanwhile, Chinese financial ecosystems are going global by spreading across Asia and Africa and the Chinese central bank is experimenting with a digital currency. In the long-term, the emerging Chinese financial ecosystem may undermine the position of the dollar in global trade and flows.

Series 'AI Metaphors'

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1. The Tool
Category: Objects
Humans shape tools.

We make them part of our body while we melt their essence with our intentions. They require some finesse to use but they never fool us or trick us. Humans use tools, tools never use humans.

We are the masters determining their course, integrating them gracefully into the minutiae of our everyday lives. Immovable and unyielding, they remain reliant on our guidance, devoid of desire and intent, they remain exactly where we leave them, their functionality unchanging over time.

We retain the ultimate authority, able to discard them at will or, in today's context, simply power them down. Though they may occasionally foster irritation, largely they stand steadfast, loyal allies in our daily toils.

Thus we place our faith in tools, acknowledging that they are mere reflections of our own capabilities. In them, there is no entity to venerate or fault but ourselves, for they are but inert extensions of our own being, inanimate and steadfast, awaiting our command.
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2. The Machine
Category: Objects
Unlike a mere tool, the machine does not need the guidance of our hand, operating autonomously through its intricate network of gears and wheels. It achieves feats of motion that surpass the wildest human imaginations, harboring a power reminiscent of a cavalry of horses. Though it demands maintenance to replace broken parts and fix malfunctions, it mostly acts independently, allowing us to retreat and become mere observers to its diligent performance. We interact with it through buttons and handles, guiding its operations with minor adjustments and feedback as it works tirelessly. Embodying relentless purpose, laboring in a cycle of infinite repetition, the machine is a testament to human ingenuity manifested in metal and motion.
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About the author(s)

At sister company Dasym, Alexander has been assigned a variety of tasks, for his interests transcend branches of knowledge as well as geographical boundaries. In brief, he writes policy papers, interprets and elucidates global developments, and conducts thematic investment research. His academic background spans public administration, history of international relations, and philosophy, having published dissertations on smart cities, Ethiopian sovereignty and independence, and Chinese philosophy towards technology. Integral to his responsibilities, Alexander wades through the latest literature on geopolitics, technology, financial markets and cultural anthropology.

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