China and Brazil ditch US dollars but USD will always remain king
- China and Brazil will now trade with each other using yuan and reais.
- One pro says China and others can't dethrone the US dollar.
- The US dollar as the world's currency is quite simply irreplaceable
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China and Brazil’s trade agreement to transact with each other in their own currencies would have no impact on the US dollar’s global dominance, according to Sergei Perfiliev.
The ‘world runs on dollars’
China and Brazil will now trade with each other using yuan and reais instead of the almighty US dollar. China already has similar agreements, most notably with Russia, and can be seen as a play in dethroning the US dollar as the world’s most important currency.
Perfiliev, a financial training instructor and ex-Goldman Sachs quantiative strategist, noted in a Tweet that the “world runs on dollars” and “it’s not going away anytime soon.”
According to Perfiliev, the US dollar is not only backed by the largest economy in the world, it is backed by the American system that is known for being free and open. US private property and assets are subject to strict laws and the risk of seizure or confiscation is minimal.
Contrast this with China, as Invezz recently reported, where billionaire Mark Mobius said China is “restricting flow of money out of the country.”
US dollar is irreplaceable
The US dollar is held by countries worldwide as part of their foreign exchange reserves while many global currencies are pegged to the US dollar. The dollar is still the dominant “common denominator” for global transactions, despite China’s latest attempts to say otherwise.
Meanwhile, global commodities like oil trade in dollars and the US is home to commodity and futures exchanges that are relied on by users across the world.
Simply put, there are no other currencies that “could tick all of the above boxes” and replace the dollar. He added:
Dollar gained ground as a reserve currency following a Bretton Woods agreement in 1944. The petrodollars were born in 1970s as a result of a deal between US and Saudi Arabia. It took decades to establish this dominant position. Just because China or Russia are diversifying from US holdings, doesn’t mean dollar demise is near. It would take more than that.
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