The 4th Industrial Revolution and the US dollar dilemma

THE theme of last week's World Economic Forum (WEF) annual meeting in Davos was the Fourth Industrial Revolution. The argument is that the world has seen three industrial revolutions - mechanical production and steam power; mass production and electricity; and electronics and information technology (IT) - and is embarking on an additional one in which artificial intelligence is likely to play a much greater role. As WEF founder Klaus Schwab states in his new book on the subject, the velocity, breadth and depth, and systematic impact of these changes have already set the fourth revolution apart from the third.

Some of the potential consequences have already been widely discussed. Inequality may persist as lower-skill jobs become automated. Growing digitisation may boost cyber risks. Disruptive technologies such as big data and blockchain may revolutionise areas like financial services. However, what has received less attention is the degree to which the Fourth Industrial Revolution will exacerbate the current divide in fortunes between developed and emerging markets.

A key example of this is what we would term "the dollar dilemma". The US possesses many of the key attributes necessary for success in the Fourth Industrial Revolution. It is a hub of technological innovation and remains an attractive destination for investment, company establishment and headquartering. This creates a plausible scenario where the US dollar maintains its structural strength.