Dollar Deposed Financial Catastrophe Stress Test

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The rise and reign of the US dollar, signposted by the end of the Second World War, is the most recent and most complete example of how monetary hegemony functions as a stabilising force in the global economy. The scenario imagines a global financial shift from the US dollar to the Chinese renminbi resulting from continued, rapid and massive development of China on a track towards becoming the world’s largest domestic economy.

The Dollar Deposed Scenario is analogous to the post-World War II replacement of the British Pound Sterling by the US dollar as dominant currency in that it is underpinned by economic weakness, large debt and significant geopolitical shifts that are external to the reserve currency nation.

The overall impact of the changeover in monetary hegemony does not lead to a worldwide recession in any of the scenario variants.