The perception that the old monetary order is shifting is no new thing. For years, a coterie of “sound money” enthusiasts, from goldbugs to cryptocurrency evangelists, have revelled in the notion that the days of the over-leveraged dollar-reserve system are coming to an end.
Time and time again, however, the dollar has defied such assertions, not least because key contenders, chiefly the euro and the yuan, have failed to make the grade on the attributes that matter.
Last week, the dollar was once again subject to speculation regarding its imminent downfall. This time, the rationale is based on reports that the Iranian regime is not just selectively restricting the safe passage of ships through the Strait of Hormuz, but charging a toll for such passage in yuan, not dollars.
For many, this new extortive element of the yuan is seen as a game-changing moment for the currency and China.
As Mallika Sachdeva of Deutsche Bank put it last week in a much-circulated report “The conflict could be the catalyst for erosion in petrodollar dominance and the beginnings of the petroyuan.”
She framed this in the context of a wider shift against the dollar based on its energy dependence.
But the prognosis misses the bigger picture.
Not only does the dollar still have meaningful levers to pull — the rise of dollar stablecoins being one — the narrative that it must fall because China is rising is far too simplistic. It mistakes a complex evolution for a simple handover.