At the recent Jackson Hole economic symposium, the Bank of England's governor Mark Carney voiced his challenges to the U.S. dollar's dominance. He believes that the world's system of relying on the dollar is unsustainable and that the "multi-polar global economy requires a new IMFS (international monetary and financial system)". The annual meeting of the global central banks is known to be the barometer of the policy turning point. As the earliest central bank in the world, the Bank of England's statement on the U.S. dollar from the perspective of central bank governance is not only a theoretical discussion on the financial regulation and monetary policy, but an actual indication that the position of the U.S. dollar system in international trade and finance appears to have been shaken. This is undoubtedly an important signal affecting the international trade, finance, and economic structure, hence decision-making departments, investors and business practitioners should pay heed of this signal.

The decline in the status of the dollar has been a process pushed along by historical development. Since the Second World War, the Bretton Woods system defines the dollar as the dominant currency This international monetary system has in fact always followed the changes in the global economic order, state governance, and geopolitics. The development of international trade and the deepening of economic globalization inevitably required the continuous expansion of the international monetary and credit systems, while on one end the gold standard will end with the accumulation of huge public debts by the United States and the exhaustion of gold reserves. After the collapse of the Bretton Woods system, and despite the gold standard system being disintegrated, the U.S. dollar remains the leader among all international currencies, and the international monetary system continues to rely on the U.S. dollar. With the dollar decoupling from gold, it effectively became a representative of modern credit currency. With that, the innovation and development of the international financial system led by the dollar have now profoundly affected and shaped the world.

With the rise of emerging market countries, the United States has gradually reduced its position in international trade and the economy. And it appears that with this the U.S. dollar will inevitably decline. Carney pointed out that the United States only accounts for 10% of global trade and 15% of global GDP, but the U.S. dollar still accounts for half of the global trade settlement and two-thirds of global securities issuance. He said that the dominance of the dollar in the global financial system has increased the risk of liquidity traps, leaving many countries facing the devastating spillover effects of U.S. economic fluctuations. The large-scale quantitative easing after 2008 also made the inherent vulnerabilities and implicit systemic risks of the U.S. dollar-dominated international monetary system become gradually clearer.

Andrew Sheng, the former Chairman of the Hong Kong Securities and Futures Commission, recently wrote that the "politicization" of the US dollar has also made the world's countries aware of the urgency of de-dollarization. The "politicization" of the U.S. dollar is manifested in two aspects. Firstly, the U.S. government uses the U.S. dollar to impose unilateral sanctions and long-armed jurisdiction over some countries in the international trade and financial settlement system, coercing them to succumb to the political needs of the U.S. government. Secondly, the U.S. uses the allegations of the "currency manipulators" to make it's trading partners swallow and accept the U.S.'s trade policies and demands. Most crucially, U.S. President Donald Trump continues to pressure the Federal Reserve, making it increasingly "Trumpized" and losing its independence. This does not guarantee the stability of a currency needed for international trade and financial transactions, and the economic interests of other countries. The "excessive privileges" of the dollar are increasingly incompatible with the current needs of international trade and financial transactions. For this, the world has a real need and reason to get rid of the dollar.

Judging from the current situation, the challenge of the U.S. dollar is mainly in several aspects. One is the establishment and development of the currency settlement systems represented by the Eurozone Instex, RMB CIPS, and the Russian SPFS an attempt to abandon the SWIFT payment system dominated by the U.S. dollar, in moves to weaken the "privileges" of the dollar. In addition to this, many central banks are buying gold to maintain the stability of their respective currencies. According to statistics, central banks around the world have purchased 651 tons of gold in 2018, an increase of 74% year-on-year. Some analysts pointed out that the central banks' concern for gold reflects the problem in their trust of the U.S. dollar. Finally, the emergence of digital currencies like the credit offerings of multinational corporations may replace the role of the U.S. dollar in the international trade and financial system.

Although the current international situation has eroded the status of the U.S. dollar day by day, for the U.S. dollar to be replaced is still a long-term process. The dollar's strength is based on the hegemonic position of the United States in the world after the Second World War. The overall strength of the United States remains unparalleled, and it will inevitably adopt various methods to prevent the loss of its "dollar privilege." As Benn Steil, director of international economics at the Council on Foreign Relations had pointed out, "faith in U.S. institutions, a (relatively) independent Federal Reserve and sheer inertia make the dollar very hard to dethrone".

With the rise of trade protectionism and counter-globalization, the status of the dollar is facing increasingly more challenges. Carney believes that in the long run, the IMF should change the situation by establishing a multipolar system. In this regard, ANBOUND has analyzed the development trend of the international monetary system through the study of the gold standard and super-sovereign currencies. However, unlike other forms of "international currency" that are discussed by central banks as an alternative to the U.S. dollar, we believe that the "super-sovereign currency" like the U.S. dollar being replaced by a geo-currency will be a fundamental trend in the development of the future international monetary system, and this trend will not be replaced by digital currency.

Final analysis conclusion:

The status of the dollar might be in a slow decline, but this will be a very long process. In the short term, the world may not actually be able to get rid of the dollar system.