‘Every crisis basically makes the US dollar stronger’

The conflict between Israel and Hamas militants in Gaza has long-term consequences for the global economy. The dominance of the dollar remains an important issue, says macroeconomist Arnott Boot. “Every crisis basically makes the US dollar stronger.”

Although the most recent escalation of the conflict between Israel is relatively early and the dollar has not yet benefited greatly from it, Booth asserts that the dollar is seen as a ‘safe haven’ and shows a clear increase in the long term during crises. That magnifies the differences between countries. ‘The Netherlands hasn’t really been affected by it,’ explains Boot. “We have huge foreign reserves and will not borrow heavily from foreign countries anymore. But in countries where foreign capital flows, it quickly returns to America.’

And according to Boot, this raises questions, including whether the dollar’s dominance will remain. “The dominance of the dollar is now immense. We can see some fragmentation in the world in terms of central bank foreign reserves, for example China does not want to hold dollar-dominated assets. But other foreign Foreign exchange reserves It is still 57 percent.

American priorities

Boot emphasizes that the United States accounts for 12 percent of world trade. It’s a relatively low percentage, but nothing but problems, Boot knows. “Trade is not that important to America,” he explains. But more than 80 percent of world trade is in dollars, and it’s growing. So the dollar has become important only for transactions.’

Also Read | Crude oil prices rise after Hamas attacks on Israel

According to Boot, this is the reason why the US currency gets stronger with every conflict, which leads to Boot’s second question: How should the Netherlands move forward with the dollar? ‘Or better: What role does Europe want the Euro to play? That seems to be the only legitimate alternative to the dollar. It’s great that China’s currency is appreciating, but you don’t really see it.’

danger

The dominant dollar is a risk factor, Boot argues. In particular it leads to ‘incredible inequality’ in the world. ‘Poor countries lose their money at times like this. Fortunately, we can keep it — we’ve made sure our financial institutions are no more In total Borrow abroad.’

Also Read | IMF: Controlling Inflation Possible Without Global Recession

Boot goes so far as to say that if the dollar strengthens it will almost certainly benefit the Netherlands – especially as the Netherlands may be seen as a safe haven. “We have a lot of dollar-denominated assets, so a strong dollar makes us richer,” he says. Additionally, the Euro is getting weaker, which is good for our business. So it’s really good for the Netherlands, but not for Europe as a whole – after all, there are countries with deficits. Precisely for that reason, things can be put on edge, which worries the boot. ‘Netherlands won’t lose sleep though.’