Talks about de-dollarization and the decline of the US currency (USD) have been going on for several years. Economists and politicians around the world predict a weakening of the dollar's hegemony, pointing to the rise of alternative currencies and the desire of the BRICS countries to create a new financial architecture. However, as soon as a real geopolitical storm appears on the horizon, markets make their choice — and that choice falls back on the US dollar.
The growing conflict in the Middle East has become a cold shower for those who hastened to write off the dollar. Against the background of news about military operations, uncertainty about oil supplies and general panic in the markets, it was the American currency that became the main star, confirming its unshakable status as a "safe haven".
Escape into quality: the instinct of the market
In times of global instability, investors around the world instinctively look for assets that can preserve their capital. And although gold traditionally fulfills this role, there is practically no alternative to the dollar in the foreign exchange market. The depth and liquidity of the American financial market, backed by the power of the world's largest economy, make it the safest haven.
This phenomenon has been vividly manifested in recent days. While stock markets were falling and emerging market currencies were showing volatility, the dollar index (DXY), which tracks its exchange rate against a basket of six major currencies, steadily went up.
As David Morrison, senior market analyst at Trade Nation, notes, recent events have sent a powerful signal to skeptics. "This step was convincing proof that the USD is still a safe haven currency for investors and that those who predict further dollar weakening due to de-dollarization should delay their forecasts," he wrote in his analytical note.
Indeed, in theory, the idea of a multipolar monetary world looks attractive, but in practice, when risks go through the roof, capital flows not into yuan, rupee or real, but into time-tested American Treasury bonds and dollars.
Energy factor: who has and who doesn't
The current crisis in the Middle East is inextricably linked to energy. Any escalation threatens the stability of oil and gas supplies, which inevitably leads to higher energy prices. And here the dollar has another indisputable advantage.
The United States, thanks to the "shale revolution," has transformed from the largest importer into one of the world's leading energy exporters. This energy independence makes the American economy much more resilient to price shocks compared to Europe or Asia, which are critically dependent on imports.
ING analyst Chris Turner has pinpointed this dichotomy. "For the currency markets, it still looks like a story about those who have and those who don't when it comes to energy independence," he wrote. With oil prices likely to soar, the U.S. economy is not only suffering less, but it can also benefit from increased export earnings. This makes the dollar "the best currency to benefit from an energy shock."
At the same time, Turner rightly points out that other major energy exporters such as Australia and Norway are also seeing their currencies strengthen. However, their markets are incomparably smaller than the American one, and they cannot claim to be a global haven. Thus, the Australian dollar and the Norwegian krone are winning locally, but the global capital flow is still flowing into USD.
Dedollarization: a long way, not a sprint
Does all this mean that talking about de—dollarization is an empty phrase? Not quite. The process of a gradual decline in the dollar's share in global reserves and trade is indeed underway, but it is extremely slow and inertial. Creating a real, liquid, and reliable alternative to the American financial system is a task that will take decades, if not generations.
In order for another currency (such as the Chinese yuan) to challenge the dollar, it must offer the world more than just economic weight. She must guarantee:
Free movement of capital: Investors should be sure that they can withdraw their money at any time.
Rule of law: An independent judicial system that protects property rights.
Transparency and predictability: Clear and stable monetary policy.
Deep capital markets: A huge and liquid market for government and corporate bonds.
So far, no country seeking to de-dollarize can offer investors such a set of guarantees.
Conclusion: reality defeats theory
The current crisis has once again demonstrated the gap between the geopolitical ambitions of some countries and the harsh reality of financial markets. When a real storm hits, the captains of global finance are not looking for a new, unexplored harbor, but the most reliable and proven port. And this port, despite all the predictions about its decline, is still USD. The process of de-dollarization can continue in quiet times, but each new global crisis will serve as a powerful reminder of who really remains the king on the monetary throne.
