JP Morgan Warns De-Dollarization Can Make US Lose Key Economic Crisis Tool

The potential de-dollarization of the global economy presents a risk for the US, as it could lose a crucial tool utilized in managing past economic crises, as per a note by JP Morgan, Business Insider reported.

Strategists stated that de-dollarization isn’t likely to result in emerging powers abandoning the dollar or substituting it with another currency. The real risk lies in inflation and increasing debt burdens that Western economies may face.

Historically, factors such as imported deflation and debt demand, amongst others, have enabled Western central banks to navigate economic crises successfully through a blend of monetary and fiscal measures. However, as world economies increasingly de-couple and energy prices rise, these crisis measures could be jeopardized and trigger inflation and debt spirals.

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The recent downgrade of the U.S. credit rating by Fitch from AAA to AA serves as a reminder of this risk, even if currently low. JPMorgan also noted signs of de-dollarization taking root in other areas, such as the oil market, where transactions are increasingly in non-dollar currencies.

While JPMorgan anticipates “marginal de-dollarization,” the pace is not expected to be fast, given the dollar’s extensive use in the global financial ecosystem.

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