Dollar

It was, on the surface, a fairly routine proposal. Officials from the BRICS nations, made up of Brazil, Russia, India, China and South Africa, have decided to discuss, at a summit in New Delhi later this year, how to deepen trade and collaboration. No one was paying very much attention when the decision was made. And yet, according to a report in the well-informed newspaper Berliner Zeitung, a resolution was quietly suggested that might turn the global monetary system upside down. It was the start of what might be termed the “plot against the dollar.” America’s currency is likely to face its most serious challenge of the post-World War Two era. BRICS Pay may not sound very exciting.

The euro is nearly level with the dollar. It should not matter in theory, because of the relatively low share of the US in EU trade. But it does in practice. Some predict that the euro will fall below parity. There is a straightforward explanation for this: the war in Ukraine and unpredictable Russian gas supplies to Europe make the dollar a safe haven for investors. On top of this, US interest rates offer a higher return on investment. But it is not only the dollar. Looking at the broader picture, the European Central Bank's measure of the euro's real effective exchange rate against 42 partner countries confirms this trend towards a new historic low: really bad news comes from the combination of the euro's falling value, the energy crisis, and the return of inflation.