Trump’s Iran strikes accelerate the world’s drift from dollar dominance | Heather Stewart

Trump’s Iran strikes accelerate the world’s drift from dollar dominance Heather Stewart Aggression feeds a sense that the US is operating outside global norms and helps to fuel a more complex currency outlook What the US-Israeli attacks on Iran mean for oil prices Donald Trump’s attack on Iran, with its puerile Pentagon nametag Operation Epic Fury, is another show of violent force from a bullish administration. Aside from unleashing fresh instability across the Middle East, the strikes add to the sense of a US operating with little regard for international law or global norms – as with Trump’s on-off tariff regime, and the attack on Venezuela. In the financial sphere, that is only likely to add weight to an incremental but historic shift away from the global dominance of the US currency and towards a more complex world that may be less to Washington’s liking. The trade-weighted dollar, measured against a basket of global currencies, has lost 7% of its value over the past year despite strong US economic growth and soaring stock prices on Wall Street. That partly reflects the outlook for inflation, and therefore interest rates, but also perhaps a more nebulous sense that the US policy framework is not as solid and predictable as it may once have been. As panellists concluded at a conference in London last week convened by the Centre for Inclusive Trade Policy, what appears likely is not that one currency will supplant the dollar, as the dollar abruptly replaced sterling after the second world war, but that a more complex, multipolar system will emerge. International trade is still overwhelmingly denominated by the greenback, although the use of China’s renminbi is rising – a phenomenon actively facilitated by Beijing. But when it comes to foreign currency reserves, global central banks have been quietly and gradually moving towards alternatives, with the share held in dollars slipping from 71% in 2001 to 57% by the final quarter of last year. The seeds were sown long ...