While economists were concerned about a significant drop in consumption levels arising from COVID-19-related lockdowns and suppression of demand sending crude prices to $0 per barrel two years ago, now they are concerned about the exact opposite — skyrocketing crude prices touching more than $130 per barrel and natural gas hitting $5.7 per metric million British thermal units (MMBtu).
There were also price increases on wheat, edible oils and other commodities with the potential to directly impact the average Joe not just in the U.S. and Western world but in the global south, where inflation shocks are even more acute.
Adding fuel to fire, the U.S. chose the worst possible weapon to deter Russia — economic sanctions. By sanctioning Russia, the world’s third-largest producer of crude and largest supplier of wheat, the U.S. has set off dynamite that could burst into a recession in the next six months, as several economists have predicted.
However, the long-term challenge for the U.S. will be to keep the crown on the U.S. dollar’s head as the leading global reserve/fiat currency. The unilateral sanctions of the West against Russia had the unintended consequence of raising inflation levels in Europe, East Africa and South Asia, which were the largest importers of Russian wheat and energy. Given that seeking alternatives and establishing substitute supply chains takes time and capital, most economies are establishing different mechanisms to circumvent the sanctions. These range from using barter trade to trading in their own currencies over the dollar.
The latter is igniting a debate on the use of the dollar for global trade. Not necessarily among America’s steadfast allies but more so with countries that are on the fence about America’s global interventions. Countries such as Brazil, China, South Africa and India that are part of the BRICS grouping make up more than 24 percent of world gross domestic product (GDP) and 16 percent of world trade. Similarly, in Africa, which makes up 3 percent of global GDP and is predicted to grow six times in size by 2050, many countries will likely reconsider dollar trade.
thehill.com
There were also price increases on wheat, edible oils and other commodities with the potential to directly impact the average Joe not just in the U.S. and Western world but in the global south, where inflation shocks are even more acute.
Adding fuel to fire, the U.S. chose the worst possible weapon to deter Russia — economic sanctions. By sanctioning Russia, the world’s third-largest producer of crude and largest supplier of wheat, the U.S. has set off dynamite that could burst into a recession in the next six months, as several economists have predicted.
However, the long-term challenge for the U.S. will be to keep the crown on the U.S. dollar’s head as the leading global reserve/fiat currency. The unilateral sanctions of the West against Russia had the unintended consequence of raising inflation levels in Europe, East Africa and South Asia, which were the largest importers of Russian wheat and energy. Given that seeking alternatives and establishing substitute supply chains takes time and capital, most economies are establishing different mechanisms to circumvent the sanctions. These range from using barter trade to trading in their own currencies over the dollar.
The latter is igniting a debate on the use of the dollar for global trade. Not necessarily among America’s steadfast allies but more so with countries that are on the fence about America’s global interventions. Countries such as Brazil, China, South Africa and India that are part of the BRICS grouping make up more than 24 percent of world gross domestic product (GDP) and 16 percent of world trade. Similarly, in Africa, which makes up 3 percent of global GDP and is predicted to grow six times in size by 2050, many countries will likely reconsider dollar trade.
Are we witnessing the beginning of de-dollarization?
The hegemony of the U.S. dollar was reliant on America’s hegemonic status in the world. With the world moving toward multipolarity and with the U.S. no longer the world’s largest trading nation (it…
thehill.com