It has been losing value in recent months, though yet. In particular, in the last three years, the dollar has detached itself from its historical foundations, although other assets called in currency (actions, for example) have gained even more relevance.
Usually, both with the dollar and the interest rates of US government bonds. The dollar tends to value itself when US interest rates go up, especially if the movement is related to a monetary tightening of the central bank.
Despite the advance in transactions with the Chinese currency, digital currencies and the search for financial multipolarity ,. In financial transactions (by the stock exchanges between banks, SWIFT) and international trade are about 50%; 88% of transactions in currency markets; and 58% of central banks reserves. For countries like Brazil, this has relevant – both economic and institutional consequences.
This dominance expressed itself with particular strength in 2022, when the Federal Reserve adopted its cycle, raising interest rates rapidly to contain an inflation that exceeded 9% per year. The difference of interest in the face of other developed economies-as the eurozone and Japan-attracted capital to the US assets, valuing the dollar on a global scale.
At the same time, geopolitical shocks such as Ukraine war, China lockdowns, and European energy crisis intensified the search for safety, the so -called Flight to Quality, which usually benefits reserve coins like the dollar. Emerging countries, such as Brazil, undergo pressure on their rates of.
The global economy still revolves around the dollar transactions, and the dollar assets -associated capital market remains, by far, the deepest and fullest in the world. However, with twin deficits (in current transactions and US public accounts); ; And increased rates on imported products, the US have been experiencing the weakening of the dollar. Would that be a trend? What speed is it expected to happen?
In his book “King Dollar”, Paul Blustein reconstructs like the US, since the rupture of the gold standard in 1971, have come to enjoy a singular privilege: to issue the currency that the whole world wants to maintain.
Kenneth Rogoff, in “Our Dollar, Your Problem”, reinforces this diagnosis with structural arguments. The hegemony of the dollar is not only due to international trust, but to concrete pillars: the liquidity of US markets, the reliable legal system and the absence of real competition. The euro still lacks fiscal integration. Yuan operates under capital control. Digital coins are promising but still marginal.
In this scenario, the dollar establishes what Rogoff calls “exorbitant asymmetry”: while the US defines its monetary policy looking only at its economy, the rest of the world is forced to adapt – in dollar reserves, giving contracts and living at constant currency risk.
Brazil knows this game well. Since we adopted the macroeconomic tripod – inflation, floating exchange rates and fiscal responsibility – we have been living with the volatility of the real, often disconnected from domestic fundamentals.
In the 2000s, the Central Bank accumulated reserves, taking advantage of the positive cycle of commodities. We left from less than $ 20 billion in 2003 to over $ 350 billion in 2011. It was a successive defensive strategy. Even so, any Fed movement generated immediate pressures on our currency and our assets – as in the so -called Tantum 2013, when the market reacted to the announcement of reducing a US monetary stimulus policy.
The temptation, at these times, is to intervene in the markets, buying or selling the border. But Blustein shows how recurring attempts to control the exchange rate on the dollar resulted in abrupt collapses-Asia in 1997 to Brazil pre1999. And Rogoff warns: With the dollar in the center, countries have little margin to try to direct their exchange rate without taking more serious risks.
Economist Gita Gopinath, former FMI, reinforces this thesis by proposing the concept of “paradigm of the dominant currency.” In her studies, she shows that the dollar not only dominates reserves and finances, but also the global pricing of goods and services. Even business agreements between countries that do not involve the US are often called dollars.
The result is that local currencies lose part of the adjustment function. The effectiveness of monetary policy decreases. And the even floating exchange rate becomes hostage to decisions outside the domestic reality.
Is the global system changing? Perhaps. Rogoff bets on a transition to a more multipolar model – a larger space for the euro, yuan and digital currencies. But he himself warns: this change will be slow, turbulent and risky. International trust does not move with discourses – it is built with decades of institutional and financial stability.
For Brazil, the challenge is to reduce the strategic dependence of the dollar, strengthening the real – not as a global currency, but as an instrument of autonomy. This requires more than accumulating reserves. It requires tax predictability, reliable regulatory environment, deep capital market and a credible monetary policy. Digital Real, Financial Modernization and Fiscal Discipline are in this regard.
Until the system changes – if it will change – the dollar will remain the center. But surely we can be more protected satellites, with tidy fundamentals.
Firm economic policy, solid institutions and transparency are the way for Brazil to fluctuate with the dollar, without ever sinking because of it.
