Impact of the West Asia War on Global Economy and Currency Markets
The war in West Asia has significantly affected the global economy, leading to substantial changes in financial and currency markets worldwide.
Shift from the US Dollar
- Countries are reducing their exposure to the US dollar, a trend accelerated by recent geopolitical events.
- Central banks added a record 850 tonnes of gold to their reserves in 2025, pushing gold prices to nearly $5,000 per ounce.
- The US dollar and Treasury securities, traditionally safe havens, did not attract investments during this crisis.
US Economic Concerns
- The US debt stands at $36 trillion, and potential defense spending increases further strain its fiscal health.
- The stock market's current performance is largely driven by investments in AI-related securities, which may not yield expected returns.
- There is a looming risk of a financial bubble burst, potentially worse than the 2007-08 crisis.
Emergence of the Petro-Yuan
- China encourages oil trade in yuan, with Russia and Iran already participating in the petro-yuan market.
- This shift challenges the dollar's dominance, with countries like Saudi Arabia and Iran accepting yuan for oil exports.
BRICS and the Multipolar Currency Order
- The BRICS-plus group (Brazil, Russia, India, China, South Africa, and others) is considering a BRICS currency to reduce dependency on the dollar.
- The US has threatened tariffs on BRICS countries pursuing de-dollarization.
Cryptocurrency and Alternative Payment Channels
- US sanctions prompt countries to explore cryptocurrencies and informal financial networks for transactions.
- The rise of cryptocurrencies offers anonymity and efficiency in financial dealings.
Chinese Currency Strategy
- China's yuan could see increased use in trade settlement but faces challenges in becoming truly international due to limited convertibility and economic policies.
- A multipolar monetary order, rather than tripolar, seems more feasible, with the yuan playing a prominent role in Asia.
Note: The views expressed are personal opinions of the writer and do not reflect the stance of Business Standard.
