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Opinion

The dollar cements its position | HT Editorial – Editorials

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The preeminence of the United States (US) dollar has been underlined with a thick green line during the present pandemic. The dollar has risen against all currencies since the crisis began. That is why there was a collective sigh of relief among central banks everywhere when the United States Federal Reserve announced Tuesday that it would exchange US Treasuries for overnight dollar loans.

The facility has also been extended to the Reserve Bank of India (RBI), although it has not yet tapped into the offering. He recently made a $ 2 billion swap and with oil prices collapsing, he has no urgent need for dollars. Like most major economies, most of India’s international financial transactions are denominated in dollars. If its external position collapses further, the central bank of India may need an infusion of dollars. With the recently announced swap agreement, RBI can use its holdings of approximately $ 160 billion of United States Treasury bonds, approximately a third of the country’s foreign exchange reserves, to meet the dollar requirements. The bank’s decision to greatly increase its dollar holdings in recent years has been prescient.

While there has been a lot of talk about the Chinese renminbi boom, around 90% of international transactions are dollar-denominated. The sudden surge in demand for dollars caused by the pandemic put many central banks in a difficult situation, including that of China. The Fed’s decision immediately eased pressure on the dollar, as it meant that the trillions of dollars of United States Treasury bonds held by other central banks were indeed as good as the cash dollars. Dollars represent 60% of the world’s foreign exchange reserves. The United States central bank, in simple and responsible action, has served to remind us that there is still only one central bank of central banks.

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