Kristalina Georgieva, Managing Director of the International Monetary Fund, confirmed that the global economy is going through a pivotal stage characterized by a state of "uncertainty" that has become the new normal, prompting investors and financial decision-makers to seek stability in traditional safe havens, primarily gold and the US dollar.
The dominance of the dollar in a multipolar world
Speaking at the Al-Ula Emerging Economies Conference, Georgieva explained that the world is already moving towards a multipolar system, a geopolitical and economic shift that directly impacts the workings of the international monetary system. Despite growing discussions about dedollarization or the rise of alternative currencies, the IMF Managing Director emphasized that this shift does not negate the pivotal role of the US dollar as a cornerstone of the global economy.
This statement comes at a time when the international arena is witnessing attempts by various economic blocs to promote trade in local currencies, but historical and current data indicate the difficulty of dislodging the dollar from its position in the foreseeable future.
Reasons for strength: depth and fluidity
Georgieva explained the continuation of this dominance by several structural factors characteristic of the American economy, most notably:
- Depth and liquidity of financial markets: US markets offer huge investment options and ease of liquidity that are not as readily available in competing markets.
- The size of the economy and entrepreneurial spirit: The continued capacity of the American economy for innovation and entrepreneurship enhances confidence in its currency.
- Sustainable growth: The ability of the United States to achieve growth rates that positively impact the rest of the world.
The dollar and global reserves
In discussing foreign exchange reserves, Georgieva noted that the dollar had long reigned supreme, accounting for over two-thirds of global reserves. However, she pointed to a natural development: the diversification of financial centers of influence, with the euro emerging as a strong reserve option, alongside currencies of stable and reliable economies such as the Swiss franc, the Australian dollar, and the Swedish krona.
This diversification, according to the IMF, does not signify the collapse of the dollar, but rather reflects an evolution in countries' financial risk management. Georgieva emphasized that fluctuations in the dollar's exchange rate are a natural part of the economic cycle, noting that its current level remains higher than its average over the past decade, thus refuting speculation of structural weakness.
The impact of the dollar on emerging markets
The interview touched on a crucial point concerning emerging markets, explaining that the strength or weakness of the dollar is a double-edged sword. Many of these economies borrow in US dollars, so any weakness in the dollar can be good news for them because it reduces the cost of servicing their debt, thus easing pressure on their public budgets amid rising global interest rates.
Georgieva concluded her vision by emphasizing that in times of turmoil and geopolitical uncertainty, the investment instinct remains directed towards the US dollar as the first destination for those seeking financial security and stability.
