JPMorgan warned of the risks of "de-dollarization", i.e., the end of the dominance of the U.S. dollar and the Chinese yuan taking the leading position in the global economic arena. This is caused by growing tensions between the two leading countries, the U.S. and China.
Analysts of the financial giant warned about the growing importance of the Chinese yuan, which is steadily moving towards its main place in international settlements.
International bank JPMorgan believes that the dominance of the U.S. dollar has come under threat amid concerns about political instability in the U.S. as well as escalating tensions between the U.S. and China, Cryptonews reported.
On Tuesday, JPMorgan strategists Jan Loeys and Joyce Chang said in a report that the markets are noticing a rapid decline in the dollar's dominant status but are not sufficiently prepared for the potential risks.
According to the experts, as tensions between countries rise, global fragmentation will increase, leading to deglobalization of trade and then de-dollarization.
The main threat to the dollar's dominance in the global financial system is the complicated political situation in the United States. JPMorgan fears that the lack of agreement between political forces in the country will complicate control over the economy in the recovery from the crisis.
JPMorgan strategists also point to the growing rivalry between the U.S. and China and the potential consequences of this confrontation, up to and including "Cold War 2.0".
JPMorgan also warned that the Chinese government's ambitious measures to ease capital restrictions and increase market liquidity in the transition away from the U.S. dollar could pose a serious threat to certain asset classes. These measures will cause the dollar to depreciate and bond yields to rise.
At the same time, even a loss of dollar dominance does not imply a complete replacement of the yuan as the main reserve currency in the next 10 years. More plausible is a scenario of "partial de-dollarization," in which China takes the initiative and gives itself a more prominent role in place of the dollar.
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