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Opinion | Weaponising US dollar and monetary policy risks setting the global economy on fire
- When global finance is used to punish political adversaries and economic competitors rather than promote growth, it undermines a global public good
- For the US too, a powerful currency is also a double-edged sword
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With the world likely to head towards a recession, what is the future of the US dollar and monetary policy?
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Two weeks ago, I explored how difficult it was to know where to put your money in a world turned upside down because of financial and geopolitical risks. There are no simple answers because how you allocate your money depends on your risk appetite and your exact circumstances, which is why broad strategies don’t work in times of massive change.
Caught in a world between higher inflation, geopolitical risks and possible recession, central bankers in the advanced markets are rethinking what to do in a period when monetary policy has to respond to splits in global supply chains disrupted by tight labour markets and Russia’s invasion of Ukraine.
The global financial system is being split from a dollar-dominated system into one likely to be in blocs with different payment systems. The US dollar system will be dominant for a while yet, but the more the currency is used in terms of sanctions, the more users will want to move away from it.
Global finance is seriously conflicted as to its real objectives – promote growth, control inflation or go fight the next war.
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Basically, the four top central banks – the US Federal Reserve, European Central Bank (ECB), Bank of Japan (BOJ) and People’s Bank of China – together run monetary policy for the world as they operate the key reserve currencies.
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