The search for an alternative to the dollar is on

An international common currency is being sought as the dollar's dominance in the global monetary system faces challenges, as evidenced by recent US support for the yen. In a historic move, the US Treasury intervened heavily in the markets to bolster the Japanese yen on July 31st, sparking investor concern. This intervention, unseen in nearly three decades, signaled significant issues within the international monetary system.

Two factors contributed to the yen's decline. Firstly, the yen's value has been steadily decreasing due to the interest rate disparity between the Bank of Japan (1%) and other nations, particularly the United States (3.5-3.75%). This discrepancy encourages a "carry trade," where investors borrow cheap yen to invest in higher-yielding currencies, profiting from the interest rate gap.

Consequently, the yen's slide has increased import costs for Japan, especially hydrocarbons, due to rising oil prices following the Iran war. Facing potential foreign debt sales by Japan, which holds the largest foreign reserves, the US feared a rise in its own interest rates. To prevent this, the White House intervened by purchasing yen, disrupting the global monetary landscape.

This US intervention, followed by similar actions, suggests new territory in international finance. Despite these efforts, they have not succeeded in stabilizing the situation.