CC BY
90ORIGINAL PAPER
DOI: 10.26794/2308-944X-2023-11-2-6-14 UDC 339.73(045), 339.9(045) JEL E02, F02
The Changing Role of the US Dollar in the Global Monetary System of a Multipolar World
A.I. Ilyinsky
Financial University, Moscow, Russia A.S. Magamedov
McKinsey & Company, Redwood City, USA
ABSTRACT
This research aims to identify possible global monetary system development scenarios in the context of the current United States dollar supremacy. The primary method used is foresight analysis, which is based on a combination of deductive and historical data and trend analyses. The paper outlines the main drivers of potential change and uses them as inputs for scenario analysis. The three considered scenarios are a continuation of the absolute dollar dominance, reduction of the dollar's power and split of the world economy between multiple currencies, and the emergence of a new single prevalent currency. The main conclusion is that the second multipolar scenario resembles the current dynamics the most and is considered the baseline. However, the answer depends on the forecasting horizon as the scenarios have a certain sequencing. The dollar will probably maintain its supremacy in the short term. Its decline in the mid-term will give rise to a multipolar world, which can then, theoretically, lead to the emergence of a new dominant currency in the long term. The results might be used as a framework for further structured analysis of possible outcomes in this domain.
Keywords: United States; dollar; hegemony; reserve currency; China; multipolar world
For citation: Ilyinsky A. I., Magamedov A. S. The changing role of the US dollar in the global monetary system of a multipolar world. Review of Business and Economics Studies. 2023;11(2):6-14. DOI: 10.26794/2308-944X-2023-11-2-6-14
ОРИГИНАЛЬНАЯ СТАТЬЯ
Изменяющаяся роль американского доллара в глобальной монетарной системе многополярного мира
А. И. Ильинский
Финансовый университет, Москва, Россия
А. С. Магамедов
McKinsey & Company, Редвуд-Сити, США
аннотация
целью данного исследования является определение возможных сценариев развития мировой монетарной системы в контексте текущего доминирования доллара Соединенных Штатов Америки. В качестве основного метода исследования был использован форсайт-анализ, который базировался на комбинации дедуктивного анализа и анализа исторических данных и трендов. Данная работа определяет основные драйверы потенциальных перемен и использует их в качестве вводных для сценарного анализа. В работе рассматриваются три сценария: сохранение доминирования доллара, снижение значимости доллара и деление мировой экономики между несколькими валютами и появление новой главенствующей валюты. Основной вывод: второй (многополярный) сценарий наиболее соответствует текущим тенденциям и поэтому рассматривается как базовый. Однако ответ также зависит от анализируемого периода, так как прослеживается определенная последовательность между сценариями. Доллар, вероятно, сохранит свое главенство в краткосрочной перспективе. При этом снижение его значимости в среднесрочной перспек-
© Ilyinsky A. I., Magamedov A. S., 2023
тиве приведет к становлению многополярного мира, в котором затем, в теории и долгосрочной перспективе, может появиться новая превалирующая валюта. Результаты работы могут быть использованы для структурирования последующих исследований в данной области.
Ключевые слова: США; доллар; гегемония; резервная валюта; Китай; многополярный мир
Для цитирования: Ильинский А. И., Магамедов А. С. Изменяющаяся роль американского доллара в глобальной монетарной системе многополярного мира. Review of Business and Economics Studies. 2023;11(2):6-14. DOI: 10.26794/2308-944X-2023-11-2-6-14
Introduction to the US dollar hegemony
The United States of America (the US) is considered a global hegemon in modern political and economic theory. The term describes the leading position of the US to all other countries, be it financial, economic, military, or technology domain. The country has the largest nominal Gross Domestic Product (GDP),1 the largest military,2 and technology spending.3 This allowed the US to establish monetary hegemony with its currency, the United States dollar (USD), acquiring the reserve status and becoming the world's dominant payment means [1].
The dollar's global ascent began in the post-World War II years, when most countries fixed their currencies against the dollar under the Bretton Woods agreement. Since then, the dollar has been empowered with unrivaled trust and has been used as the primary payment means in global trade. Today, up to 80% of global export invoicing is done in USD dollars (except for Eurozone, where USD accounts for 20%) [2]. Roughly 60% of national banks' reserves are US dollars.4 The scale of these near-monopoly numbers is signified by the fact that the US accounts for only 25% of the global GDP.5 The closest competitor, Euro has reserves share of 20%. That leaves bits and pieces for the next six biggest currencies sharing the remaining 20% of the balance: Japanese yen, British pounds, Canadian and Australian dollars, Chinese Renminbi, and Swiss francs4.
1 GDP (current US$). 2021. URL: https://data.worldbank.org/ indicator/NY.GDP.MKTP.CD (accessed on 15.05.2023).
2 U.S. defense spending compared to other countries. 2022. URL: https://www.pgpf.org/chart-archive/0053_defense-com-parison (accessed on 15.05.2023).
3 Main Science and Technology Indicators. URL: https://www. oecd.org/sti/msti.htm (accessed on 16.05.2023).
4 Currency Composition of Official Foreign Exchange Reserves. 2022. URL: https://data.imf.org/?sk=E 6A5F467-C 14B-4AA8-9F6D-5A09EC 4E 62A4 (accessed on 15.05.2023).
5 GDP (current US$). 2021. URL: https://data.worldbank.org/ indicator/NY.GDP.MKTP.CD (accessed on 15.05.2023).
Literature overview
This dominant position of the USD had become a cause for controversy, especially after the global financial crisis of 2007-2008, when the world's financial system almost collapsed due to subprime mortgage lending and derivatives speculation in the US.
The story starts with Robbert Triffin [3] and his famous work predicting the inevitable collapse of the reserve currency, which has always been the dollar. Still, the global monetary system is heavily reliant on the American currency (I. Hjertaker and B. S. Tran0y [4]). H. M. Schwartz [5] believes the main explanation is in US's control over international intellectual property, allowing the extraction of a major part of the total profit. P. Gourinchas [6] highlights another attractive dollar feature — complementarities between the role of the dollar for international trade and international financial transactions. S. Murau, J. Rini and A. Haas [7] believe that global governments might not have enough political will to transform the system without a significant shock, which is a matter of time.
At the same time, there is an expectation that emerging countries, particularly BRICS, will financially challenge the US. Z. Zongyuan and P. Mihaela
[8] believe the countries have built the necessary infrastructure for that. A particular example is China, often seen as the main protagonist. W. O. Alwago
[9] explored the launch of the Central Bank Digital Currency (CBDC) or digital renminbi that gives the country the first mover advantage. Yet, K. Siddiqui
[10] does not expect the renminbi to challenge the dollar materially in the next few decades.
Interestingly, E. Prasad [11] believes that secondary reserve currencies such as the British pound or Euro will be phased out by the renminbi first. While the old currencies declined, S. Arslanalp, B. Eichengreen, and C. Simpson-Bell [12] identified a growing share of unconventional currencies such as the Canadian dollar or Korean won. The change is driven by the development of international fi-
nancial centers and the emergence of new directly traded currency pairs.
Regarding other factors affecting the dollar, Daniel McDowell [13] saw a decline in the dollar use by the sanctioned states. D. Halcoussis, W. H. Kaempfer, and A. D. Lowenberg [14] noted a trend toward protectionism that further reduces the dollar's importance.
Summarizing all the above, existing research highlights important dynamics of the global economy and raises questions about the future of the dollar hegemony. Yet the knowledge is fragmented, and the bigger picture is missing. This paper covers this gap by outlining high-level scenarios and defining the play's main stakeholders. The result might be used as a basis for planning and preparation for the possible disruption at the country level. The matter is urgent as the scale of potential disruption is tremendous, given the role of the USD on the global level.
Pillars of the dollar dominance
Despite the research focusing on the disadvantages of the dollar-run system, two strengths must be considered to have a balanced view. Of course, one can think of more, but they will be a derivative of these core ones, and we focus on them within this paper. Each of the two must be placed on the scales when assessing the countries' future outcomes and potential willingness to drive the change to an established system.
The first strength is stability. Dollar and dollar bonds being backed by the US are considered risk-free assets. The country has best-in-class corporate governance and a strong army, which combined mitigate external and internal risks. In addition, the government virtually cannot default on its liabilities as it can always refinance its debt from any participating country. As a result, global investors accumulate dollars or American assets bought with dollars to secure their wealth, especially in the event of instability.
The second is liquidity. The dollar is accepted anywhere in the world and can be easily converted into any asset, be it another currency or something material. A combination of several factors forms this feature. Besides the stability mentioned above, which increases the currency's attractiveness, the US has a foreign exchange infrastructure with all the countries that is a heritage of the Bretton Woods agreement. These international connec-
tions are further enhanced by the world's most profound and most sophisticated financial markets, enabling any exotic transaction. All this creates unrivaled global trade possibilities through cross-conversion via the dollar, especially for countries with non-mainstream currencies (e.g., South Africa and South Korea).
Challenges to the US dollar hegemony
Pressure on the dollar hegemony comes from four primary sources: inherent limitations of the global reserve currency model, the rise of new superpower countries, internal mismanagement of the economy by the US government, and technological developments in digital and decentralized finance.
a. Flaws of the reserve currency system
The inherent limitations are split into two parts. Part one is called Triffin's Dilemma, after its author, the economist Robert Triffin and was formulated in 1960. The US must run a constant current account deficit to supply dollars for the world's reserve accumulation and trade liquidity. At the same time, the deficit growth drives the sovereign debt, and the bigger it becomes — the less trust the global community has in the dollar. Today, we might observe the real-life case study as the US debt totals a significant $ 31 trillion,6 more than the country's GDP, and is a hot international topic and a matter of disagreement between the US's ruling parties [15].
Part two concerns US manufacturing. While political US institutes benefit from reduced borrowing rates of the reserve dollar, real business struggles with international competition [16]. Excessive demand for the reserve currency strengthens the dollar, which has two cumulative effects. First, it becomes cheaper for consumers to acquire international products, i.e., import becomes more accessible. Second, US export becomes more expensive for foreigners. Both effects discourage domestic production and investment, increasing the US reliance on international players and making the country more vulnerable to supply chain and trade war disruptions. The most graphic example is the rise of China, which took over electronics, apparel, and many other manufacturing domains, including microchips, causing various political clashes and trade wars between the country and the US.
6 Understanding the National Debt. URL: https://fiscaldata. treasury.gov/americas-finance-guide/national-debt (accessed on 17.05.2023).
b. Emergence of new geopolitical and economic powers
The next source of pressure is the rise of new superpowers. It has been 80 years since the Bretton Woods agreement. Today, we see several promising geographies like India, Southeast Asia, the Middle East, and Latin America. However, most attention is paid to Europe and China — each is considered a significant player and center of gravity in the respective region.
China smartly exploited its weak currency and low labor rate to develop outstanding manufacturing capabilities and earned the title of the world's forge. It often takes second place after the US on the most critical metrics, with an occasional surge to first place. Today, it is the number one trade partner for more than 120 countries, including the US [17]. The country has the first or second largest economy, depending on whether one factors in purchasing power parity into calculations.7- 8 It has the second largest population and labor force, marginally yielding to India, which recently took the lead.9 China has second absolute spend on the military, equipped with nuclear weapons, and fortifies the country against direct encounters.10 Its currency, Renminbi, is already a reserve currency with 3% of the global reserves,11 which certain scholars predict to increase in the future [18].
The European Union — an economic union of 27 countries, includes powerhouses like Germany and France and would be the third largest economy after the US and China [19]. Most countries in the region are considered first-world countries. They are very close to the US in terms of development: a stable political and economic climate, strong military, a high human development index, etc. And what is most important, run the single currency — the euro, which is often predicted to be the successor to US
7 GDP, PPP (Current International $). URL: https://data. worldbank.org/indicator/NY.GDP.MKTP.PP.CD (accessed on 15.05.2023).
8 GDP (current US$). 2021. URL: https://data.worldbank.org/ indicator/NY.GDP.MKTP.CD (accessed on 15.05.2023).
9 India to Overtake China as World's Most Populous Country in April 2023. 2023. URL: https://www.un.org/en/desa/india-over-take-china-world-most-populous-country-april-2023-united-nations-projects (accessed on 17.05.2023).
10 U.S. defense spending compared to other countries. 2022. URL: https://www.pgpf.org/chart-archive/0053_defense-com-parison (accessed on 15.05.2023).
11 Currency Composition of Official Foreign Exchange Reserves.
2022. URL: https://data.imf.org/?sk=E 6A5F467-C 14B-4AA8-9F6D-5A09EC 4E 62A4 (accessed on 15.05.2023).
hegemony. The currency accounts for 20% of the global reserve balance.12
A glance will reveal these two regions, with the US almost ideally splitting the world into three equal parts in terms of economy and geography — each center is equally distant from the other two. Thus, being global powers, both regions exercise significant influence and might interfere with the previously unconditional authority of the US.
c. Loss of the dollar's safe currency reputation due to the US economy's shocks and use of the dollar as a geopolitical weapon
The third element is outstanding events and actions of the American institutes that create additional strain on the financial system and undermine public confidence in it. There have been a number of cases throughout the history, including the cancellation of the USD's gold standard in 1971 and the Vietnamese war of 1955-1975, that roughly halved the dollar's value. However, these are, in a way, the relics of the past, and more recent events are of particular interest: the financial crisis of 2007-2008 and the economic sanctions imposed on several countries such as Iran and Russia.
The financial crisis resulted from the mortgage market crumbling due to risky lending. It caused significant damage to the global economy and reduced its growth for several years. Yet the most critical was the near collapse of the global financial system. US mortgages accounted for a massive 73% of the US GDP [20], and a significant part of risks was pushed overseas through derivatives. As a result, several international institutions (including European banks) defaulted and required government assistance [21]. Economic sanctions were another cause of the global disturbance. The US uses various financial measures, including international USD payments obstruction via Swift and block on redemption of USD-denominated debt (which constitutes the majority of international reserves). Given the dollar's importance in the global monetary system, this is a powerful geopolitical tool.
Both of the above elements jeopardize the dollar's reputation as a stable and safe currency as investors see the materialization of previously considered non-existent risks. The urgency for a change for them is amplified by the colossal share of the dollar in assets and reserves. This stimulated
12 Ibid.
countries (including China, the primary holder of the US debt) to search for ways to diversify risks. The solutions used included more traditional assets such as Swiss francs and gold or innovative methods such as digital currencies and crypto assets. Moreover, sanctions created a reverse effect as the number of affected countries grew — sanctioned countries started forming alliances of all kinds (e.g., trade between China and Russia in national currencies13).
d. Introduction of new technology-enabled currencies
As for the new currencies, historically, one of the dollar's competitive advantages was an extensive international payments network. The system is costly and slow but is challenging to replicate and, therefore, has remained uncontested. Some countries were seen doing trade in national currencies, but that is a semi-manual process that is difficult to scale. This absence of payment alternatives made countries extremely vulnerable to disruptions, which took the form of sanctions for several countries. However, digitalization and technological development provided possible options. One is the Central Bank Digital Currency (CBDC). Two are blockchain-based cryptocurrencies like Bit-coin and Ethereum. It is essential to mention that each operates completely differently despite being united under the "technology-enabled" umbrella.
CBDC is an early concept similar to a regular central bank's money with one significant difference. The means can be built from scratch without the limitations of the legacy architecture, which might create a better fit for international trade.14 CBDC has no mass-scale real-world application yet but is being piloted by numerous central banks worldwide. As for cryptocurrencies, they have become a hot topic over recent years and are popular with individuals15 for transborder payments as a way to avoid government control. Businesses have not used these means on a large scale, and trade volumes are insignificant globally. Still, the tech-
13 China's Yuan Replaces Dollar as Most Traded Currency in Russia. 2023. URL: https://www.bloomberg.com/news/arti-cles/2023-04-03/china-s-yuan-replaces-dollar-as-most-trad-ed-currency-in-russia (accessed on 18.05.2023).
14 Central Bank Digital Currencies for cross-border Payments Report to the G20. 2021. URL: https://www.bis.org/publ/ othp38.pdf (accessed on 15.05.2023).
15 Cryptocurrencies — Worldwide. 2022. URL: https://www. statista.com/outlook/dmo/fintech/digital-assets/cryptocur-
rencies/worldwide (accessed on 16.05.2023).
nology is there, and it might gain an impulse as the new generations of crypto-native people grow up. Additionally, the smart features of the blockchain give additional flexibility that might be used to overcome the limitations of traditional currencies.
The future of US dollar hegemony
To assess future outcomes, we use two questions as a guideline: what the theoretically possible end states of the global financial system are and what the possible transition paths are. The first question was used to lay out the structure of the three end states, and the second question helped assess the feasibility of each of the alternatives. The scenarios below are shown logically for ease of comprehension without any other ranking in mind.
Scenario 1: Continuation of US dollar dominance
The starting "do nothing" scenario assumes no active steps are taken, and all players still use the dollar as before. In this case, it is possible to expect a gradual erosion of the USD's power due to the system's shortcomings described in Trif-fin's dilemma. The scenario would culminate in an excessive US debt level leading to a default and complete collapse of the international monetary system. The main reasons for the chaos to spread outside the US would be the absence of a close substitute (perspectives of the Euro will be discussed shortly) and the devaluation of half of the world's reserves.
However, the severity of the damage makes the collapse highly unlikely. In the short term, all existing stakeholders would keep the system running as it is in their best interest to avoid a complete breakdown. As for the long-term, current de-dol-larization efforts (e.g., emerging trade in national currencies16) show the aspiration of the countries to reduce the dollar influence, and there seems to be enough time to prepare, reducing the chances of collapse. Moreover, the US might drive the change being interested in stopping the previously mentioned deterioration of manufacturing and resolving its significant debt. However, this change will require a strong political will, as it might have an unappealing image of American surrender.
Scenario 2: Emergence of a multipolar currency system with several currencies coexisting
16 China's Yuan Replaces Dollar as Most Traded Currency in Russia. 2023. URL: https://www.bloomberg.com/news/arti-cles/2023-04-03/china-s-yuan-replaces-dollar-as-most-trad-ed-currency-in-russia (accessed on 18.05.2023).
The middle scenario assumes that multiple currencies will run the system. The scenario is the closest to today's reality, where several reserve and trade currencies coexist (e.g., dollar, renminbi, crypto, and digital currencies), and, therefore, seems the most probable of the three. The main difference to reality will be a more balanced ratio of the currencies that would strongly correlate with the economic power of the economies.
Interestingly, there might be any combination of geographies and currencies. A theoretical setup (only to illustrate the multi-currency view) could look like the following. The American continent would still hold to the dollar, the European region might switch to a cryptocurrency, and Asia would run digital Yuan. In this setup, the second-order regional countries (e.g., Indonesia and Vietnam in Asia) would trade with each other in the region's reserve currency, while cross-region trade would involve two major currencies. For the scenario to become true, some countries must share the reserve role, its benefits, and its burdens with the US. Only China and Europe have an economic scale that might make it work, but there are nuances.
Despite the strong Chinese economy and all the merits and enablers previously mentioned, there are two significant blockers. First, the country follows an export-oriented development model with an artificially weakened currency, where the US is the leading trade partner buying most of the trade surplus.17 At the same time, the US accommodates the Chinese proceeds from this export in the form of investments [16], as no other country has comparable investment capacity and financial markets development. As a result, taking on the reserve role by China would mean abandoning this export model, which has brought the country to where it is today, and would require finding a different development paradigm.
The second blocker lies in the Chinese government's controls over the country's capital accounts [22], and limits on the amount of debt foreigners hold. And, as was previously explained, foreign entities must be the primary holders of the sovereign debt for the reserve system to work, and it is a major contradiction. Overall, the reserve status requires certain sacrifices, and there is a question
17 China Trade balance, exports, Imports by Country 2020. URL: https://wits.worldbank.org/CountryProfile/en/Country/CHN/ Year/2020/TradeFlow/EXPIMP/Partner/by-country (accessed on 18.05.2023).
of whether the communist party is willing to make those.
As for the Euro, which might seem a promising contestant to the US, there is a significant barrier to becoming a reserve currency. The region has limited debt capacity despite the size of the economy and the use of a single currency. Europe is a union of independent countries, all of which are of varying credit trustworthiness — think Germany versus Greece. This immediately reduces the potential pool of secure bonds investors seek.
Scenario 3: Replacement of the US dollar with another dominant global currency
The third scenario implies that the dollar will no longer be a reserve currency, and other means will take the role. There are two possible ways this might happen. First, a regional currency (from scenario number two) will dominate others and become the global reserve currency. However, we will not discuss this alternative as it means restarting what once was the dollar hegemony and, therefore, seems unlikely given the learnings from the past.
The second way is a global agreement on using a single supranational currency. The currency must include a special balancing mechanism to avoid trade surplus or deficit issues. For this reason, Special Drawing Rights used by the International Monetary Fund (IMF) today or Bancor proposed by John Keynes fit well. Also, a crypto/blockchain currency with some special "smart contract" rule might theoretically work. However, it is important to stress that cryp-tocurrencies do not have a solid use case today and are mentioned for the completeness of the review with high long-term potential in mind.
The main hurdle to implement any of these alternatives would be reaching an agreement with major economies, as it would require unprecedented levels of collaboration. Given the current competitive dynamics and geopolitical tensions, this scenario seems unlikely in the short term.
Implications of the reserve currency change for the US and the world
The discussion of possible implications should start with the US as the country that will be affected the most. Three critical areas to examine are: borrowing rates and sovereign debt, trade and investment flows, and geopolitical influence. The main problem with the first element, the sovereign debt, is the ability of the US to service it. The current level of the debt is 11.5 times the
government's income, which was $ 2.7 trillion in the fiscal year 2023.18 In the event of lower demand for the dollar due to the emergence of alternatives, the borrowing rates will increase, materializing the rollover risk. The government will be forced to refinance existing debt at a higher rate, driving the interest payments up. This is critical given the US budget deficit14 and limited funds availability. In the end, the government might need to cut spending on potentially essential projects (e.g., military, education, infrastructure) to make the budget even.
Regarding trade and investment flows, the main question is about the investment changes. The US is considered a safe harbor and has a significant capital inflow. There is a high chance these flows will not change significantly with the emergence of the multipolar world (which we consider a baseline). The US has extremely flexible and deep financial markets with a strong reputation and governance. In addition, the country is at the forefront of technology and innovation. However, a significant portion of the inflow is speculative, which does not add value to the economy and just drives the trade deficit. This, in turn, leads to higher borrowing and higher sovereign debt mentioned previously.
Finally, there is geopolitical influence. The US can influence global politics in its favor with various financial levers (besides previously mentioned sanctions). Reduction in the dollar influence will limit these possibilities and might push the US to the last resort of using military forces in certain cases.
Moving on to the rest of the world, there are three primary considerations: enhanced competitiveness of the reserve currencies, end of export-oriented development, and the drop in the value of the dollar balances. The first element benefits the global community and is about the emergence of international competition for funds. The reserve currency issuers might start competing with each other to attract the most funds, which might result in many benefits, from increased lending rates to a better investment climate, more developed financial markets, etc.
However, the transition will have its toll in the form of two potential issues. The first is the previously described end of the export-oriented model, which is critical for all surplus-running countries such as
18 How much revenue has the U.S. government collected this year? URL: https://fiscaldata.treasury.gov/americas-finance-guide/government-revenue/ (accessed on 18.05.2023).
Germany, Japan, and Russia. Besides, some countries might not have a surplus with the US directly, but they could trade with Germany or China, which will still lead to the US at the end of the value chain.
The second concern is the pressure on the dollar's value due to the mass sale of the dollar holdings. The countries must rebalance their portfolios to match the new reserve currencies' structure to trade in the new multipolar world. If governments do not perform that gradually and begin the race to sell their dollars quickly, that might drop the value of the holding significantly, potentially causing country-level bankruptcies and another global financial crisis.
Conclusions and options for policy reform in the US government
The role of the US dollar will likely diminish with time, given the pressures and ongoing transformations toward the multipolar world. Therefore, the rhetoric must be focused on changes. Evidently, any material changes will happen over the following decades, giving the US government time to prepare and secure the most benefits by leveraging its dominant position. The renewal strategy might cover five aspects.
The first is maintaining the supremacy of the financial markets in terms of quality and depth to ensure the stable inflow of foreign capital that will finance nation-critical projects in the future. Trust and advanced institutes are the main assets of the US, and it would take years for other countries to catch up. Most countries will have to radically change their processes and standards and then wait decades to establish a history of reliable investments to convince investors.
The next element might be taking the initiative to create a new supranational currency. The dollar still holds tremendous power, which might help capture the first-mover advantage. For example, the creators of the currently most popular cryptocurrencies (e.g., Bitcoin, Ethereum) kept a significant stake after the launch, capitalizing on the currency appreciation.
The third element might be the insourcing and stimulation of its highest value-added production (e.g., electronic chips) to ensure strong exports and a balanced international trade position. This point could work well with the US's world-class technology and talent attraction capabilities.
The fourth element would be working with the closest allies and neighboring states like Mexico.
Ultimately, the competition might not be between the countries but between the clusters or regions. The US, therefore, might set up closer ties with its neighbors and gear them up to have similar advantages as in the points mentioned above.
The final element might be the pragmatic corrections of US foreign policy within the framework of the realpolitik theory, taking into account the changing geopolitical situation and the legitimate interests of all international actors.
The primary conclusion is that the multipolar scenario resembles the current dynamics the most and is regarded as the baseline. However, the answer depends on the forecasting horizon because the scenarios follow a specific sequence. Dollar dominance will likely persist in the near future. Its decline over the medium term will result in a multipolar world,
which could theoretically lead to the emergence of a new dominant currency over the long term.
Limitations of the paper and future research
This paper provides the high-level framework to analyze the possible changes to the dollar he-
gemony. It would benefit greatly from additional in-depth research on the defined challenges and scenarios. In particular, the future research plan might include a discussion of the emerging superpowers. With its complex political and economic considerations, China could be one of these deep dives. At the same time, another longer-term view of other high-growth economies such as India or Indonesia might contribute to the comprehensive understanding of this multi-decade process.
Digital and cryptocurrencies are also worth a separate discussion that requires substantial expertise in the technical domain. Possible questions to explore could be practical implementation in international trade for digital currencies and the ability to function without the dollar as the underlying currency for the crypto ones.
Finally, the work focuses solely on geographic views of the world, with countries being the leading trade agents. The research would benefit greatly from exploring implications for various supranational political and economic organizations (e.g., BRICS, Mercosur).
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ABOUT THE AUTHORS / ИНФОРМАцИЯ ОБ АВТОРАХ
Alexander I. Ilyinsky — D. Sc. (Tech.), Professor, Scientific Supervisor of the Global Studies Institute, Financial University, Moscow, Russia
Александр Иоильевич Ильинский — доктор технических наук, профессор, научный руководитель
института глобальных исследований, Финансовый университет, Москва, Россия
https://orcid.org/0000-0002-7803-9146
Corresponding Author / Автор для корреспонденции
ailyinsky@fa.ru
Aleksandr S. Magamedov — Master of Economics, Consultant in McKinsey & Company's Silicon Valley office, Redwood City, USA
Александр Сергеевич Магамедов — магистр экономики, консультант компании McKinsey в офисе
в Кремниевой долине, Редвуд-Сити, США
https://orcid.org/0009-0006-3737-3451
magamedov.alexander@gmail.com
Conflicts of Interest Statement: The authors have no conflicts of interest to declare.
The article was submitted on 04.05.2023; revised on 21.05.2023 and accepted for publication on 03.06.2023.
The authors read and approved the final version of the manuscript.
