JP Morgan says 2 factors could lead to dedollarization – and markets are not pricing it in

<p>Via Bloomberg reporting (gated) on a JP Morgan note for clients.</p><ul><li>#1 among the factors that could threaten the dollar’s long-term dominance is political dysfunction in the US that could block efforts to manage the national debt, “preventing a government from stabilizing the economy during a crisis due to fiscal constraints,”</li><li>#2 is intensifying competition between the US and China<ul><li>“If US-China tensions intensify and we get more global fragmentation, it would likely lead to de-globalization in trade and finance,”</li><li>“In finance, it could also lead to dedollarization.”</li></ul></li></ul><p>JP Morgan says the impact of a move away from the dollar and shocks to its stability would include bringing down the value of the greenback and equity multiples while boosting bond yields
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chance of the dollar being supplanted altogether as the key reserve currency within the next 10 years are quite low</li><li>see a “partial dedollarization” as more likely, with China taking on more and more of the greenback’s role among non-US aligned nations</li></ul><p>USD is still the dominant reserve currency</p><ul><li>USD share of international reserves fell from 73% in 2001 to 58% in 2022 (IMF data)</li><li>USD allocation in sovereign wealth fund portfolios has offset that decline</li></ul><p>—</p><p>Count me as one those skeptical of the yuan supplanting the USD at anything beyond 'partial'. </p>

This article was written by Eamonn Sheridan at www.forexlive.com.