Guancha: Saudi Arabia is considering using yuan instead of U.S. dollars in oil sales to China, according to recent reports from U.S. media. According to Indian media reports, the Modi government recently approved a Russian proposal to allow Russian entities to invest in Indian company bonds. In the context of financial sanctions against Russia by Western countries, this mechanism can enable India-Russia trade to continue. Could all these be regarded as a revolt against the dollar and US financial hegemony? Is it too early to say that this is the rise of a new world financial order?
Dr. Gal Luft: There is no doubt that a full-blown revolt is already taking place against the dollar hegemony. Many people are asking: if the dollar is no longer reserve currency what will replace it? The Euro? The yuan? This is the wrong framework to look at the issue. It is not the case of one king succeeding another. There is no single currency that can replace the dollar. Instead, we are moving from an era of currency unipolarity to an era of currency multi-polarity in which several currencies, including gold and cryptocurrencies, will compete against each other for greater share in central banks’ reserves. In the new financial order countries will increasingly transact with each other in non-dollar currencies. The dollar will gradually lose its grip over the multi-trillion-dollar commodity market and the demand for the US currency will fall. Once there is less demand for dollars, the US will not be able to sell its dollar denominated debt instruments with the same ease it has done for nearly a century. Countries like China will reconsider the wisdom of buying US debt in the same pace as before. With demand for its debt declining the US will have to raise interest rates on its bonds and this means that the cost of servicing its debt will spike, leaving less money for defense, health, education, infrastructure etc. This will affect US ability to provide foreign aid, support international organizations, protect its allies and invest in infrastructure projects abroad. As a result, more and more countries will become disappointed by the US and will seek alternative security and economic partners. Domestically, as less and less money directed to social services, the public will become increasingly unhappy and this could lead to an even more unstable political system.