For decades the Philippines has been a country where even the average person is aware of foreign currency-exchange rates. This is not common in most other nations.
Because of overseas Filipinos’s remittances, department stores, like SM, were happy to provide pesos to those who wanted to exchange Japanese yen, South Korean won, Saudi Arabian riyals, euros and, of course, the US dollar. Now with many Chinese tourists headed to the Philippines, the Chinese yuan has made it to the list of currencies being exchanged.
However, it is the US dollar from which all currencies derive their “value”. The US dollar is the global “reserve currency”, or anchor currency for all the world’s government. Whether the government is democratic and stable or an absolute dictatorship, the US dollar is considered the final store of wealth. As in past times when a gold coin could be used to buy goods and services any place on Earth, the US dollar is almost universally accepted as the ultimate legal tender.
Of all known central bank foreign-exchange reserves held by some 180 countries, the US dollar makes up about 65 percent of those holdings. The reason for this is that in 1972 global governments decided they would no longer exchange their currency for gold or silver but that those currencies would be “backed” by dollars. In other words, all national currencies would be exchangeable for US dollars.
The reason this system has endured for more than 40 years is that the world’s most important commodity—crude oil—is priced in US dollars. But the system that keeps the US dollar as king is faltering.
Other nations—most notably Russia and China—have for years been trying to move from using US dollars as a medium of exchange for trade. Those were challenges to the dominance of the dollar but not mortal threats. China has been doing all it can to use its yuan as the settlement currency for bilateral trade.
While “everybody hates China”, its initiative to increase the transportation and trade infrastructure between the East and the West is not going to stop. Nor are nations from Germany to Indonesia going to stay out of the “One Belt One Road” projects no matter what they may say in public.
Trade between Russia and China is settled in yuan or Russian rubles. Russia is accepting local currency from countries that it has trade for its oil products. Now, Venezuela will no longer sell its oil for dollars. Venezuela may be a godforsaken economic disaster of a socialist dictatorship, but it is also an important player in the economic proxy war of China and Russia against the US dollar.
The US dollar will be the King Currency for some time. But the move to diminish the king’s power is going forward. This is not going to be an “assassination” with a new king—such as cryptocurrencies, precious metals or another currency—taking over. It will be a reduction of the power of the dollar and it is going to happen.