Is Hormuz the US Dollar’s Suez?

The United States now faces a fiscal profile reminiscent of mid-1950s Britain. Its debt-to-GDP ratio exceeds 120%, a level only briefly surpassed during the Covid-19 pandemic. The current-account deficit, which had narrowed after the 2008 crisis, widened again, briefly topping 5% of GDP early last year. The dollar still accounts for roughly three-fifths of foreign-exchange reserves and remains the primary invoicing currency for international trade.

Asia Times

Seventy years ago, Gamal Abdel Nasser’s nationalisation of the Suez Canal provoked a joint invasion by Britain, France and Israel. The United States led an international condemnation that forced a withdrawal, and the loss of confidence crippled the British pound, ending its reserve-currency status. The current Hormuz crisis is presented as a potential “nail” that could similarly erode the US dollar’s privileged position.

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• Euro: The EU, the world’s third-largest economy, now conducts most intra-EU trade in euros.

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• Yuan: Beijing prices more energy contracts in renminbi, and the yuan underpins the CIPS network, offering an alternative to SWIFT.

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• Stablecoins: Dollar-pegged stablecoins inject liquidity into dollar-denominated markets.

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• Reserve Share: The dollar holds about 60 % of global reserves; the euro and yuan hold modest but growing portions.

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A multipolar currency system could raise borrowing costs for sovereigns, reshape trade invoicing, and limit the United States’ ability to impose sanctions through the global financial network. Alternative reserve assets may also affect capital flows, investment strategies, and the valuation of US Treasury securities.

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Analysts cite structural barriers that keep the euro and yuan from supplanting the dollar. The Eurozone’s reluctance to issue union-wide safe assets, combined with northern states’ concerns about shared liabilities, hampers a Eurobond strategy. China’s partial yuan convertibility, shaped by memories of the 1997-98 Asian financial crisis, limits demand for it as a reserve currency. These constraints suggest that geopolitical pressure, more than pure economics, often drives currency decline.

Asia Times

• “Make no mistake: the dollar remains the world’s premier currency, for now.” — Asia Times analysis

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• “The greenback still accounts for roughly three-fifths of all foreign exchange reserves, and export invoicing is still almost exclusively denominated in dollars.” — Asia Times analysis

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• “The Suez Crisis was the final nail in the coffin of the British pound as a global currency.” — Asia Times analysis

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• “While the Hormuz crisis may not immediately do the same, it is the first of what could be many more nails in the exorbitant privilege that the US dollar has until now enjoyed.” — Asia Times analysis

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Monitoring the Hormuz situation, Eurozone policy and China’s yuan reforms will indicate whether the dollar’s dominance erodes further, while US fiscal consolidation and current-account adjustments will shape its long-term outlook.

Asia Times