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The mighty dollar shows reserve currency dominance.

Rich nations have spent more than $9 trillion so far on tackling the economic fallout from COVID-19. And more spending is on the way as governments try to ensure there is a functioning economy post the pandemic.

The damage done is likely to surpass the financial crisis and maybe even the Great Depression.

It is the worst economic crisis in the last 70 years.

Now investors are rushing to safety. The 11-year bull run in US stock markets is over. And there is one safe haven everyone is banking on and it is not gold. It is the dollar. For all the talk that the dollar would lose its reserve currency status, it proved to be just that, talk.

Emerging markets have borne the brunt of the rush for dollars. Indonesia's rupiah lost almost 14 percent of its value since the beginning of the year. The Russian rouble and Mexican peso have lost a fifth of their value.

The problem for emerging markets is that they may want to cut interest rates to stimulate economies hit by the coronavirus, but that would undermine their currencies further. And interest payments on dollar-denominated debts has just soared, unbalancing finances.

The sterling fell more than 10 percent, a level last seen in 1985. The United Kingdom's divorce from the European Union has broken the resilience of the pound, which was considered to be tethered to the fortunes of the continent.

The best performing currency just happens to be the Argentine peso - best performing in the sense that it has fallen the least compared with other Latin American nations. The fact that it has introduced capital controls, limits to money flowing out of the country to tackle an economic crisis, has certainly helped.

The dollar has been the world's leading currency for more than a century. Today, more than 60 percent of all foreign bank reserves and 40 percent of all debt is held in US dollars.

Jameel Ahmad, the global head of currency strategy and market research at FXTM, tells Al Jazeera: "The dollar not only remains the king. If this was a game of thrones, the dollar is on the dying throne, it has been on the dying throne for an extremely long time, it dominates all of the seven kingdoms under it and this has been something that has been in play for close to a century now, since war times."

He adds: "And we are still 20-30 years away from anybody being able to say that they could challenge the dollar."

https://www.aljazeera.com/programmes/countingthecost/2020/03/pandemic-proves-world-reserve-currency-200328113954984.html

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