Stop Betting Against the Greenback. The Math Doesn’t Care.

(SeaPRwire) –

By: Christian Pierce

The market loves a funeral. Specifically, the U.S. dollar’s funeral. Pundits write obituaries constantly. They spill ink over sliding valuations. They gripe about “safe haven” failures. They cite “Liberation Day” as a turning point. The dollar failed to rally when rates rose. Stocks fell, and the greenback did not save the day. Critics point to China’s currency. They see a clear usurper in the renminbi. They claim trade settlement shifts prove the end. This narrative is lazy. It ignores history. We have heard this since 1971. Nixon killed the gold standard back then. The predictions of doom started immediately. Fifty years later, the patient is still alive. The dollar has outlived every terminal diagnosis. People confuse price with power. They think a weaker valuation means lost hegemony. They are wrong. A strong dollar is not the point. A weak dollar is not the point. Reserve currency primacy is a competition. It is a burden few can carry. The French called it an “exorbitant privilege.” Valéry Giscard d’Estaing coined the phrase. It implies luck. It implies unearned endowment. This is a lackadaisical belief. The privilege must be earned. Significant burdens must be accepted. The dollar is ugly. It has blemishes. But it is the prettiest option in the room. That is the only reality that matters.

Let us look at the numbers. Valuation does not mirror strategic standing. It tracks tactical factors. Think about relative growth. Think about inflation. Think about interest rates. Consider 1990. The Cold War ended. America had a unipolar moment. Yet the dollar was 24% lower than today. Consider 2000. The dot-com bubble was intact. 9/11 had not happened. The dollar was 14% lower. Consider 2015. Populism was not yet dominant. Isolationism was not the norm. The dollar was 11% lower. The data contradicts the fear. In fact, the dollar hit a 37-year high in October 2022. This happened during the peak of “declinism” debates. The high valuation persisted. The narrative of collapse is disconnected from the price action. Now look at China. Trade settlement in renminbi is rising. It went from zero to 50% in 15 years. This sounds impressive. It is misleading. Settlement is not invoicing. Buyers of Chinese goods do not hold renminbi. They are invoiced in dollars. They buy renminbi only to settle the bill. The renminbi’s share of invoicing is tiny. China faces a hard trilemma. An open economy can only have two of three things. It can have a fixed exchange rate. It can have flexible monetary policy. It can have free capital movement. It cannot have all three. China chooses control. It wants to manage the exchange rate. It wants to control monetary policy. It sacrifices capital mobility. This choice disqualifies it from reserve status. It cannot compete without open capital accounts. Opening the capital account is unattractive. China relies on exports. It relies on investment for growth. It cannot let external factors dictate interest rates.

Issuing the reserve currency is not a free lunch. It is a heavy burden. You need a massive economy. You need deep, open markets. You need safe assets. The world must want to hold them. You need total capital mobility. Assets must move freely. You need legal stability. Policy must be consistent. Geopolitical clout is required. The costs are high. Other countries build reserves. They run trade surpluses. That means the reserve issuer runs a deficit. It buys more than it sells. The currency becomes structurally overvalued. Competitiveness suffers. Credit gets loose. Spending increases. Bubbles form. Capital volatility spikes. Few nations accept this deal. The Euro is the main alternative. It has economic heft. It represents economies somewhat smaller than the US. It has capital openness. It has legal credibility. It holds 20% of allocated reserves. But it falls short. It lacks a deep pool of reserve assets. There is no equivalent to U.S. Treasuries. It scores low on geopolitical clout. Europe took baby steps during Covid. They moved towards joint liabilities. But the continent offers nothing comparable in size. That change is measured in decades. It seems more distant today. The dollar has problems. Deficits are large. Debts are mounting. Policy lurches toward protectionism. Isolationism is rising. But look at the alternatives. They are worse. The dollar wins by default. The throne is heavy. No one else wants to sit on it.

Author bio: Christian Pierce, a veteran chief financial columnist and markets commentator specializing in global macroeconomic trends and currency analysis.