Jeffrey Sachs, a renowned economics professor and Director of the Center for Sustainable Development at Columbia University, has predicted that the role of the US dollar will naturally decrease as the share of the United States in the global economy becomes smaller and settlements in other currencies take hold. Sachs made this observation during an online session of the latest Annual Columbia China Summit on Friday. He noted that the international payment system is currently based on the dollar, with up to 60% of foreign trade settlements conducted or denominated in the US fiat, and around half of currency reserves based on it.
Sachs pointed out that the US share of the global economy is around 15% in purchasing terms, which is far less than the role of the greenback. He described the role of the US dollar as “kind of historical” and reflective of the power of the United States in the 20th century. Sachs also highlighted that with the US turning its currency into a political weapon by confiscating foreign exchange reserves of Russia, Venezuela, and Iran, many countries do not want to keep their money in dollars anymore.
Sachs is convinced that in the future, payments are going to be settled through central bank digital currencies (CBDCs). The digital yuan (e-CNY), the digital version of the renminbi issued by the People’s Bank of China, is now undergoing trials at the retail level within the country, but Sachs believes that it will eventually become an international payment system for cross-border settlements. He added that Russia, China, Saudi Arabia, India, and South Africa have been looking for alternative payments as they do not want to use the US dollar-based banking system. According to Sachs, this trend is understandable, and the role of the US dollar will diminish in the future, while the role of the renminbi, the rupee, the ruble, and other currencies will increase.
Sachs is known for his work as an economic adviser to governments from Latin America to Eastern Europe, where he supported the transition to market economies. Two years ago, he criticized bitcoin for offering “nothing of social value” but acknowledged some of the benefits of using digital currencies, including more efficient transactions. His recent remarks on the declining role of the US dollar in the global economy are likely to be of interest to policymakers and investors worldwide.