The dollar's dominance in international payments and demand could be challenged by oil trade with Russia in local currencies.....

 The current system where the US dollar serves as the global reserve currency has drawbacks, particularly its potential to export inflation and its susceptibility to US economic policies. While a stable dollar could fulfill its role, the reality is that its inherent volatility and the potential for the US to use its reserve currency status to its own advantage undermine its effectiveness and create instability in the global economy. A more stable and globally neutral reserve currency, or a system with multiple reserve currencies, could better serve the interests of international trade and economic growth by preventing the transmission of inflation and promoting balanced trade.

1. The Dollar's Role and Its Limitations:

Reserve Currency:

The US dollar is the dominant global reserve currency, meaning it's widely held by central banks and used in international transactions.

"Exorbitant Privilege":

The US benefits from its reserve currency status, including lower borrowing costs and the ability to finance its debt more easily.

Inflationary Pressure:

When the US experiences inflation, this can be transmitted to other countries through the dollar's reserve role, as other nations hold dollar-denominated assets.

US Policy Influence:

The US can use its monetary policy (e.g., interest rate changes) to influence global capital flows, which can have disruptive effects on other economies.

2. The Need for a More Stable Currency:

Trade Benefits:

International trade is meant to lower prices and increase real incomes and growth. A stable currency is crucial for facilitating this.

Avoiding Inflation:

A stable currency prevents the transmission of inflation from one country to others through trade imbalances.

Neutrality:

A reserve currency should be neutral and not subject to the economic policies of any single nation. This would create a more stable and predictable global financial system.

Diversification:

Some experts suggest that a system with multiple reserve currencies, or a move away from a single dominant currency, could be beneficial.

3. Alternatives and Challenges:

Multiple Reserve Currencies:

A system where several currencies are used as reserves could offer more stability and reduce the influence of any single nation.

Digital Currencies:

The rise of digital currencies like stablecoins, which are pegged to other assets, could potentially offer more stability and transparency.

De-dollarization:

Some countries are exploring ways to reduce their reliance on the dollar, but the US dollar's deep integration into the global financial system makes a rapid shift unlikely.

Chaos and Instability:

The transition to a new global reserve currency system could be disruptive and chaotic if not managed carefully.

The dollar's dominance in international payments and demand gives a cutting edge to the US economy in the form of cheaper imports and dear exports to other countries which could be challenged by oil trade with Russia in local currencies. Petro-dollars have been increasing inflation in the oil importing countries because of costly and volatile dollars which become even costlier during uncertainty due to safe heaven image that makes inflation expectations self fulfilling in the oil importing countries. If dollar could be held stable its utility as a reserve currency could fulfilled, but the situation is far from satisfactory. We need a currency that is stable and does not export inflation through trade since trade is done to lower prices and increase real incomes and demand and growth.