Investing.com – The U.S. dollar has had a tough summer, falling significantly in August, but JPMorgan Chase believes those predicting the demise of the greenback are getting ahead of themselves.
At 06:00 ET (10:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 101.127, having lost 1.6% over the past month.
“Diversification away from the dollar is a growing trend, but we find that the factors supporting the dollar’s dominance remain entrenched and structural in nature,” JPMorgan analysts said in a note dated Sept. 4.
The bank added that the role of the dollar in global finance and its implications for economic and financial stability are supported by deep and liquid capital markets, the rule of law and predictable legal systems, commitment to a free-floating system, and the smooth functioning of the financial system for dollar liquidity and institutional transparency.
Moreover, the private sector’s genuine confidence in the dollar as a store of value appears to be beyond dispute, and the dollar remains the most widely used currency across a variety of metrics.
However, JPMorgan said: “We are seeing greater diversification and significant shifts in cross-border transactions as a result of sanctions on Russia, China’s efforts to promote the use of the renminbi, and geo-economic fragmentation.”
The bank added that the most important and underestimated risk is the increasing focus on payments independence and the desire to develop alternative financial systems and payment mechanisms that do not depend on the US dollar.
“The risks of de-dollarization seem exaggerated, but cross-border flows are shifting significantly within trading blocs and commodity markets, alongside a rise in alternative financial architecture for global payments,” JPMorgan Chase said.
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