JPMorgan analysts have warned that rising geopolitical tensions between the world’s two biggest economies pose an even greater danger of de-dollarization.
According to Bloomberg, analysts at JPMorgan have expressed concern that rising tensions between the United States and China might lead to a decline in the dollar’s role as the currency of choice for international reserves and trade settlements.
Analysts agree that growing tensions between major powers might spark a new cold war. “If tensions between the U.S. and China escalate, we should expect to see more global fragmentation, which is likely to result in deglobalization in trade and financial… As a result, de-dollarization may occur in the financial sector.
Political difficulties, which JPMorgan analysts warn might hinder the government from keeping the economy steady during a financial crisis, are another threat to the dollar’s dominance.
As officials argued over the particulars of a bipartisan debt limit agreement earlier this year, the United States government was on the verge of its first-ever default. President Xi Jinping allegedly made market-friendly policies to promote China’s economy while US legislators delayed the accord until the last minute.
Analysts believe that China’s economic reforms, together with the prospective relaxing of its severe capital restrictions, might weaken the dollar.
Market strategists at JPMorgan are warning of the dangers of de-dollarization, but they also emphasise that it is very improbable that any other currency would replace the US dollar as the world’s reserve currency within the next decade.
They predict a “partial de-dollarization” as the Chinese yuan gains ground on the dollar in countries that are not in a close economic relationship with the United States.
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