HSBC Predicts The Future of the US Dollar as the World Reserve Currency

 
1,571Views 0Comments Posted 18/06/2024

Leading global bank HSBC has predicted the future of the US dollar, forecasting how long the currency can stay as the world’s reserve. The prediction comes at a time when the BRICS alliance is looking to dethrone the US dollar from the global reserve currency status.  The threat against the US dollar from local currencies remains high as developing nations are targeting the USD. The BRICS alliance is aiming to uproot the U.S. dollar’s global supremacy by promoting local currencies for trade settlements. BRICS wants to strengthen their native economies by cutting ties with the U.S. dollar for cross-border transactions. The bloc is on a world tour trying to convince developing countries to use local currencies for trade and not the U.S. dollar.

HSBC Securities Chief Commodities Analyst, James Steel remains positive that the US dollar will weather the storm initiated by BRICS. He said in an interview with Bloomberg that the US dollar has not faced any significant challenges except a blip in reserves. For the uninitiated, the central banks of BRICS and other developing countries have been dumping the US dollar and diversifying their reserves.  The development will affect several financial sectors in the U.S. leading to a market decline in the coming years. If BRICS ditches the dollar for trade, the USD currency will return to the homeland leading to hyperinflation in America. 3 U.S. sectors stand to be directly affected if BRICS dumps the dollar for trade. A total of 3 financial sectors in the U.S. will take a direct hit if BRICS ditches the dollar for cross-border payments. The sectors that could begin to decline include banking, foreign exchange, tourism, and consumer goods and production. Below are the 3 financial sectors that will be impacted if the U.S. dollar is not used for settlements anymore.

Banking and Finance

Technology and Fintech

Consumer Goods and Retail

First and foremost, the banking and financial sector will be the hardest hit as foreign exchanges will begin to decline. The forex markets run on supply and demand, and if the demand for the USD dips, the U.S. Central Bank will find it harder to import the dollar. If the Central Banks of BRICS countries don’t accumulate the dollar, the U.S. will see its currency returning home. Moreover, the U.S. has been importing its inflation to other nations for years and a return of the currency will lead to hyperinflation in the homeland.

Secondly, the technology sector will take a hit as inflation in the U.S. leads to job losses. Additionally, multinational corporations have to shell out more money to keep businesses afloat and stay at the top without sinking. BRICS can bring down the U.S. economy if they stop accepting the dollar for payments.

Lastly, and in conclusion, the everyday consumer goods in the retail sector will see prices skyrocketing. Also, inflation will take a grip on the markets leading to prices of day-to-day commodities turning expensive. Moreover, the Biden administration must act quickly to counter BRICS and stop the decline of the U.S. dollar.

Central banks have been massively accumulating gold since 2022 after the US pressed sanctions on BRICS member Russia for invading Ukraine. The HSBC analyst explained that BRICS accumulating gold will have no impact on the prospects of the US dollar. He stressed that the US dollar will remain a dominant currency even after 20 years.  “We don’t believe that there’s going to be any loss of sovereignty for the U.S. dollar as far as the world’s reserve currency goes, for the next 10, 20 years, as far as we can see, for reasons that would take an entire program, you and I could talk about it,” he said.

In conclusion, HSBC has predicted that the US dollar will be the de facto currency even after two to three decades. The BRICS de-dollarization agenda could fail as local currencies stand no chance of beating the US dollar.