The U.S. dollar index is an important indicator that comprehensively reflects the strength of the U.S. dollar in the international foreign exchange market. On Wednesday local time, the U.S. dollar index fell to 93.42, and once fell to 93.17, the lowest since June 2018. Prior to this, the U.S. dollar index had experienced a downward trend. It fell from 103.9 in March to 100 in May, and then to 97 in June. It has hit the lowest point in two years, with a drop of 10%.

Is the U.S. dollar falling again because investors have lost confidence in the U.S. dollar? This comes from the fact that the Federal Reserve continues to send easing signals. On Wednesday local time, the Federal Reserve announced that it would maintain its loose policy to support the U.S. economy hit by the epidemic. This means that the United States may also release liquidity to the market. After all, the epidemic in the United States is still very serious. According to real-time statistics from Johns Hopkins University in the United States, as of the 29th, the cumulative number of confirmed cases of COVID-19 in the United States has exceeded 4.4 million, and the cumulative number of deaths has exceeded 150,000, accounting for nearly a quarter of the world's total.

The falling trend of the US dollar and the Federal Reserve's insistence on monetary easing have triggered the view of many international institutions and experts that the US dollar may collapse. Yale University economist Stephen Roach said that in the context of deglobalization, the U.S. budget deficit is unprecedentedly large and the national savings rate is low, making a future dollar collapse inevitable.

Jeffrey Gundlach, CEO of DoubleLine Capital, known as the "New Bond King", believes that the U.S.'s substantial increase in fiscal spending to fight the epidemic will inevitably lead to a decline in the U.S. dollar; once the U.S. dollar collapses, the U.S.'s dominance of the international financial system will The power will disappear. The famous Wall Street investment bank Goldman Sachs has a similar view.

Although these views have some validity, it is also necessary to note that the US dollar, as the preferred reserve currency, still plays a role in world transactions. The U.S. dollar remains the currency of choice for investors, who use U.S. dollars to trade various assets around the world. Half of the world's trade and two-thirds of currency reserves are denominated in U.S. dollars.

The US dollar's attainment of such a status is related to the US dollar's long-term "binding" to oil. If the U.S. dollar collapses in the future, it is likely because a currency or alternative international transaction method that can replace the U.S. dollar appears in the world.

During the epidemic, many countries actively held U.S. dollars, which not only showed that some countries were still inseparable from the U.S. dollar, but also supported the status of the U.S. dollar in the international market to a certain extent. According to Korean media reports, on July 30, the Federal Reserve agreed to extend the currency swap agreement with South Korea for six months, that is, the expiration date was extended from September 2020 to March 2021. After the currency swap with the Federal Reserve, South Korea will receive sufficient U.S. dollar liquidity to meet the needs of the local market.

At the same time, Singapore also announced that the Federal Reserve has agreed to extend a US$60 billion currency swap arrangement with Singapore until March 2021. This move will facilitate companies in Singapore and the region to obtain US dollar loans. Of course, the reason why Singapore and South Korea seek to exchange for US dollars is also related to the fact that they only recognize US dollars in market transactions.

Therefore, as long as the U.S. dollar still plays a dominant role in international transactions, the United States will unscrupulously abuse the monetary power of the U.S. dollar and transfer the inflation risks caused by currency proliferation to the world.

Text | Title by Zhong Zhisheng | Pictures by Deng Weijian | Review by Rao Jianning | Liu Sulin