Investing.com – The US dollar has had a difficult summer, dropping substantially during the month of August, but JPMorgan thinks those predicting the demise of the U.S. currency are getting ahead of themselves.
At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.127, having lost 1.6% over the course of the last month.
βDiversification away from the dollar is a growing trend,β said analysts at JPMorgan, in a note dated Sept. 4, βbut we find that the factors that support dollar dominance remain well-entrenched and structural in nature.β
The dollarβs role in global finance and its economic and financial stability implications are supported by deep and liquid capital markets, rule of law and predictable legal systems, commitment to a free-floating regime, and smooth functioning of the financial system for USD liquidity and institutional transparency, the bank added.
Additionally, the genuine confidence of the private sector in the dollar as a store of value seems uncontested, and the dollar remains the most widely used currency across a variety of metrics.
That said, βwe are witnessing greater diversification and important shifts in cross-border transactions as a result of sanctions against Russia, Chinaβs efforts to bolster usage of the RMB, and geoeconomic fragmentation,β JPMorgan said.
The more important and underappreciated risk, the bank added, is the increased focus on payments autonomy and the desire to develop alternative financial systems and payments mechanisms that do not rely on the US dollar.Β
βDe-dollarization risks appear exaggerated, but cross-border flows are dramatically transforming within trading blocs and commodity markets, along with a rise in alternative financial architecture for global payments,β JPMorgan said.
This post is originally published on INVESTING.
