End of dollar hegemony fast nearing: Economist Helene Rey

With Asia increasingly becoming the economic centre of the world and the US' influence on global trade shrinking, coupled with the emergence of digital currencies, the end of dollar hegemony on international finance may be nearer than anticipated, London Business School economist Helene Rey said on Friday.

Since World War II, the greenback has been the hegemonic currency for global finance and trade, and the US Federal Reserve's monetary policy has been setting the tone for the global financial cycle.

Delivering the 35th commencement day lecture of the Exim Bank here, Rey, the Lord Bagri professor of economics at LBS, also noted that there are difficulties for the US to remain a world banker or insurer, which it has been since the Bretton Woods institutions came into being in 1945.

It can be noted that from a being a poor developing country till about the mid-1990s, China has come a long way and is today a USD 14-trillion giant controlling 16 percent of world trade.

Its sway on global economy has been underlined well in the bloodbath on global equity markets since the outbreak of the deadly coronavirus since last month and the resultant gloomy outlook on global economy, given the supply chain disruption the epidemic has created.

The equilibrium in which the dollar is the dominant international currency is becoming more unstable over time as the relative size of the US in the world economy is shrinking, while the stock of dollar liabilities in the rest of the world is consistently growing, Rey said.

"As the economic centre of the world is moving towards Asia, and China is emerging as a geopolitical force, the days of the dollar hegemony may be counted," Rey said.

She also warned "the emergence of private or public digital currencies can also have a catalytic role and upset the payment systems in ways which are unusual historically."