THE SHIFTING BIPOLARITY: ANALYSING THE EURO'S ASCENSION AND THE EROSION OF US DOLLAR SUPREMACY
DOI:
https://doi.org/10.53555/kywgc447Keywords:
Exchange rate, US dollar, Euro, Bipolarity, ForecastingAbstract
The longstanding hegemony of US dollar (USD) is now facing an unrelenting challenge owing to external geopolitical weaponization and internal fiscal pressures. Although the use of the currency network inertia is central in the traditional theories, they do not sufficiently incorporate the two current forces: the supply side effect on institutional breakthroughs (Eurozone unified debt) and the accelerating demand side pressure to de-dollarize through sanctions. The hypothesis of this paper is that the international monetary order is in a controlled shift to stable bi-polar in USD-Euro, and that the development of a deep, liquid safe asset pool by the Eurozone plus the rising cost of the USD as a strategic tool had triggered the shift. In testing this, a panel data regression model will be used to determine central bank reserve diversification (COFER data) in relation to the indicators of EU unified debt volume. This is supplemented by the quantitative study of trade invoicing and the use of cross border payment systems (SWIFT vs. CIPS/INSTEX) to approximate the geopolitical risk aversion. The results indicate that institutional supply-side maturity is a prerequisite, but the geopolitical risk premium is the possible catalyst to the observed diversification and provides important implications about the future of world finance.
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