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Jamie Dimon has a warning for Americans accustomed to the dollar sitting atop the global financial system: U.S. military supremacy may be one of the things keeping it there.<\/p>\n
The JPMorgan Chase CEO said the U.S. risks losing the dollar\u2019s status as the world\u2019s reserve currency if the country can no longer boast the world\u2019s strongest military and economy in the future.\u00a0<\/p>\n
\u201cIf we\u2019re not the strongest military in 25 years and the strongest economy, we won\u2019t be the reserve currency either,\u201d Dimon told PBS over the weekend. \u201cThe world will be fragmented, and it\u2019ll be very dangerous for us.\u201d<\/p>\n
While it might initially seem like the armed forces have nothing to do with the greenback, American military and economic might are \u201ctied up inextricably together with the dollar,\u201d according to Daniel McDowell, Syracuse\u2019s Moynihan Institute of Global Affairs Associate Director.<\/p>\n
\u201cHe\u2019s more or less saying that a weak military is a sign of a weak economy, and you would expect that the currency would kind of follow suit,\u201d McDowell told Fortune. \u201cIf you think of the economy as being the underlying foundation of dollar dominance, the military is the icing on the cake.\u201d<\/p>\n
While the international finance expert\u00a0emphasized that economic strength is the strongest indicator of the dollar\u2019s strength, he also outlined several scenarios in which dollar dominance could take a hit even with a strong U.S. economy because of a weakened military. One of them is international relations: If allies believe that the U.S. is vulnerable to attack and isn\u2019t capable of defending itself, they\u2019d start to worry about their dollar-denominated assets there.\u00a0<\/p>\n
\u201cA strong military makes a currency more appealing because it\u2019s a signal to foreign investors that their assets are safe,\u201d McDowell said. \u201cIt matters because a strong defense projects security of assets in a way that is distinct from the financial regulations in a country.\u201d<\/p>\n
Similarly, if the U.S had a weaker military and U.S. allies worried it wouldn\u2019t be able to come to their defense if needed, they wouldn\u2019t have the same incentive to buy Treasury bonds and invest in the country.<\/p>\n
\u201cThe argument would be that if the United States can no longer defend other countries, those countries see the dollar as a bit less appealing because in the current state, loaning dollars to the United States government helps the U.S. pay for the defense that you benefit from,\u201d McDowell said.\u00a0<\/p>\n
Another scenario is if the U.S. entangled itself in an all-out conflict with a rival like China or Russia and \u201closes decisively\u201d. Markets would react and the world could view the country as diminished, an attitude that \u201cmight leak into the dollar.\u201d<\/p>\n
\u201cI don\u2019t think Iran\u2019s a great case here because it\u2019s not an all-out war, but in the future scenario where the United States does get engaged or would get engaged theoretically in an all-out conflict, and and with with a major power, and come out without a victory,\u201d McDowell said, \u201cI think that would have implications for the U.S\u2013both its its political, but also its economic reputation, and that would have implications for for the dollar in terms of how overseas investors view that.\u201d<\/p>\n
But institutions and economic dynamism\u2014how fast an economy innovates and shifts resources\u2014also play a role in the dollar\u2019s strength. Eswar Prasad, a senior fellow in economic studies at the Brookings Institution, told Fortune those factors \u201care far more important to a reserve currency\u2019s status than an economy\u2019s size or military power,\u201d but acknowledged their role.<\/p>\n
\u201cOf course, a weakening of U.S. economic and military power and an erosion of its domestic institutions as well as geopolitical influence will hurt the dollar\u2019s dominance, even though the lack of any serious rivals will prevent it from being displaced as the dominant international payment and reserve currency,\u201d Prasad said.\u00a0<\/p>\n
#JPMorgan #CEO #Jamie #Dimon #warns #dollar #dominance #depends #strongest #military<\/p>\n","protected":false},"excerpt":{"rendered":"
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