Drooping Dollar May Face Global Reckoning, but Is There a Viable Replacement?

The dollar is in one of its periodic slumps, and talk has been rife that the greenback’s day as the world’s dominant currency is done. Europe, China, Russia and India have talked about finding some alternative. CNN commentator Fareed Zakaria warned recently on his program that the dollar faces “a death by a thousand cuts” that could bring a “reckoning” for the U.S. economy.

Not so fast, says Ian Bremmer, president of the Eurasia Group, a research and consulting firm. In a commentary, Bremmer argued that “rumors of the dollar’s death are greatly exaggerated.”

He pointed to the buck’s continued dominance. While admitting that this lofty status has diminished somewhat this century, as other economies have risen, the dollar’s ubiquity continues—and it remains by far the most “widely used for funding, pricing, trade invoicing and settlement, cross-border borrowing and lending even when the U.S. is not involved.”

To be sure, the dollar has been waning since September 2022, off 10%, as fears of a U.S. recession—and thus a reversal of the Federal Reserve’s campaign to raise interest rates—began to worry global investors. The U.S. currency took another leg down over the past month amid anxiety over the nation’s banking system.

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Bremmer noted that other denominations have ruled in the past and then withered. A key example: the British pound in the 1800s. However, “when the pound lost its status, there was another currency on the sidelines ready to take its place,” he wrote: the dollar. “Today, there is no such challenger.” To Bremmer, the European Union is too fragmented for the euro to supplant the dollar, and the Chinese yuan suffers from China’s lack of openness and investor protections.

As the world’s biggest economy during the past century, with the largest and most open capital markets, the U.S. has a powerful advantage, Bremmer declared. Although the dollar’s share of central banks’ $12 trillion foreign exchange reserves has certainly waned since 1999, it is still nearly twice that of the euro, yuan, pound and Japanese yen combined, Bremmer indicated.

Of course, dollar dominance has downsides, Bremmer acknowledged. It makes U.S. exports more expensive and hobbles American competitiveness. Also, it feeds Washington’s reliance on debt, which has ballooned in recent decades.

“Without a viable challenger, it’s very unlikely that the dollar will lose its special role anytime soon—for better or worse,” Bremmer contended. “You can’t replace something with nothing.”

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Tags: Debt, dollar, Eurasia Group, Euro, exports, Fareed Zakaria, Federal Reserve, Ian Bremmer, pound, yuan

The $242.3 billion New York State Common Retirement Fund has committed $1.3 billion to two funds as part of its Sustainable Investments and Climate Solutions program. It also earmarked more than $600 million to alternative investments in February.

The pension program committed $1 billion to funds tracking the MSCI World ex USA Climate Change Index, which overweights companies expected to benefit from the transition to a low-carbon economy and underweights companies facing greater climate change risks. A company’s carbon intensity, climate risk management, potential stranded assets, physical risk exposure and development of climate solution products and services are the key factors assessing these rankings.

The NYSCRF also committed $300 million to the Carval Clean Energy Fund II as part of its sustainable investment program. The credit fund focuses on opportunities in clean energy, renewable energy, energy efficiency and energy storage with a focus on North America and Europe.

New York State Comptroller Thomas DiNapoli said the NYSCRF has so far invested more than $18 billion of the $20 billion target for its sustainable program, including investments in public equity, fixed income, private equity, infrastructure and real estate asset classes.

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“These investments will position the fund well for the future as the world transitions to a low-carbon economy,” DiNapoli said in a release. “These latest commitments will help us protect the fund’s long-term strength, transition its portfolio to net zero emissions by 2040, and position it for changes already happening in the markets.”

DiNapoli also announced the completion of the NYSCRF’s annual review of thermal coal and oil sands companies as part of its review of energy sector investments it expects will face significant climate risk. He said that, based on the reviews, the fund will continue to restrict investments in 22 previously restricted coal companies, and it will restrict six additional coal companies that have not demonstrated a readiness to transition to a low-carbon economy. The companies are Alliance Resource Partners, Geo Energy Resources, PT ABM Investama, PT Delta Dunia Makmur, PT Indonesia Asahan Aluminium (Persero) and Thungela Resources.

Additionally, of the nine oil sands producers the pension fund evaluated, DiNapoli said six failed to demonstrate transition readiness: Athabasca Oil, Canadian Natural Resources, Cenovus Energy, Husky Energy, Imperial Oil and MEG Energy. As a result, the fund said it will continue to restrict investment in those companies.

The restriction also means the fund will not directly purchase or directly hold debt or equity securities in those companies, nor will the fund invest in the companies through an actively managed account or vehicle. DiNapoli added that the investments in the restricted companies, which include approximately $19.9 million in thermal coal and $27.9 million in oil sands securities, will be sold “in a prudent manner and timeframe.”

In other February activity, the pension fund committed $300 million within its private equity portfolio to the Hudson River Co-Investment Fund IV, managed by Hamilton Lane. The fund will target middle-market companies in New York state, primarily in the healthcare, technology, transportation, business services and manufacturing sectors.

Another $300 million was committed within the NYSCRF real estate portfolio to the Cortland Enhanced Value Fund VI from Cortland Partners. The fund is a closed-end, commingled fund focusing on acquiring, developing and operating multifamily properties in the Southeast and Southwest U.S. The pension fund also committed more than $75 million to two real estate properties, which include approximately $70.6 million for a 240-unit multi-family apartment community in Phoenix and $4.7 million in a two-building affordable housing property in Cohoes, New York.

Finally, within the pension fund’s emerging manager program, which invests in newer, smaller and diverse firms, $15 million was allocated to the Empire GCM RE Anchor Fund, which will focus on creating and acquiring industrial outdoor storage in the Netherlands, Germany and Sweden.