Road to economic recovery paved with monetary challenges

Digital currencies may show a way forward for future international trade, argues Huawei's Na
Huawei's Na Ran (Image: Huawei)

6 July 2020

Since the end of the second world war, the United States has had a deal with the rest of the world. If all countries use the dollar for global transactions, America will supply the currency to keep the wheels of global trade, finance and commerce turning. The benefits America derives from this system underpin much of its global power. However, the era of the strong dollar may be coming to an end as President Donald Trump and the US Federal Reserve appear determined to undermine it. A crash of the US dollar could even help fuel the rise of digital currencies as new forms of diversification are sought.

The long decline of the US Dollar as the leading currency

Many experts have warned that a changing global landscape paired with a significant US budget deficit will spark a dollar crash. As one analyst puts it: “The US economy has been afflicted with some significant macro imbalances for a long time, namely a very low domestic savings rate and a chronic current account deficit.”

“The dollar is going to fall very, very sharply,” he noted, forecasting a 35% drop against other major currencies within the next two years.




The national savings rate is likely going to decline further while at the same time, America is engaging in what has become known as “de-globalisation”, decoupling itself from the rest of the world. This could prove to be a lethal combination as many financial observers believe this makes a dollar crash virtually inevitable, triggering negative effects for US financial assets. However, the effects of de-globalisation and dollar devaluation will not be limited to the United States. Many countries have begun to realise the evolution of money in the digital age can be harnessed to diversify world currencies and avoid fiscal instability.

The current retreat began with Donald Trump’s victory in the 2016 US presidential election, which led to ongoing tariff disputes between the United States and China. The pandemic will likely have an even larger negative long-term impact on trade, partly because governments increasingly recognise that they need to regard public-health capacity as a national-security imperative.

Undeterred by reality, President Trump has imposed trade tariffs and quotas in an attempt to reduce the trade deficit. Reports suggest he wants to “cancel” debts to China. Like his predecessors, he has used the US dollar as a weapon against his enemies, applying or threatening sanctions and asset seizures to cause pain for geopolitical rivals, and has repeatedly pressured the US Federal Reserve to weaken the value of the dollar. None of this will change the trade deficit. But all of it makes alternatives to the dollar-based global system much more appealing.

How digital currency can help to diversify

Some argue that the best candidate for a future global reserve currency is digital. Former Bank of England governor Mark Carney called for a new virtual reserve currency whose value is based on a basket of global currencies. While it comes with its own set of challenges, it can certainly help with diversification and avoid hegemony or arbitrary devaluation of a single currency. In 2019, China’s Central Bank Digital Currency (CBDC) began pilot testing. Companies involved include the four major state-owned banks, the three big telecoms companies, as well as Huawei. As the pandemic could accelerate the demise of the US dollar as the world reserve currency, and with it inflict harm on global trade, more and more countries are looking for alternatives to the dollar system.

The post-pandemic world economy seems likely to be a far less globalised economy, with political leaders rejecting openness in a manner unlike anything seen since the tariff wars and competitive devaluations of the 1930s. The byproduct will be not just slower growth, but a significant fall in national incomes for all but perhaps the largest and most diversified economies.

Focusing on the eventual recovery, the EU plans to harness digitisation in support of its so-called Green Deal, attempting to leverage “digitisation as an enabler for decarbonisation.” The digital decarbonisation plan is part of wider policy proposals aimed at making “Europe fit for the digital age”. While the plan is still subject to change, it does give a clear indication of the Commission’s intentions, proclaiming that “digital solutions will help us to become climate-neutral by 2050.”

Huawei, a reliable partner to Europe for 20 years, is ready to support these efforts. We believe that digital technologies can support environmental policies such as waste and recycling. They could even help Europe reduce more CO2 emissions than it emits. One of the ways technology can perhaps contribute most to decarbonisation is through the power of data. Potential areas of application are multiple and include digital transport solutions, decentralised energy systems, and smart climate-neutral communities.

Na Ran is chief marketing officer, Western Europe, with Huawei Technologies

The opinions expressed in this piece are those of the author and do not purport to reflect those of the publisher.

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