There is no competition for the US dollar as the leading reserve currency. The US has maintained a tremendous grip over the world’s economics, politics, and military for decades. Making it a superpower in every sense. The US dollar is so important that it may be considered the uncrowned king of the financial world.
While we have recently witnessed two important movements in geopolitics: a shift away from the US dollar as the global currency reserve, and an increased emphasis on bilateral currency swaps for commerce. De-dollarisation is on the way.
In Effect Of De-Dollarisation
As the power dynamics of the twenty-first century have shifted, which prompts the United States to recognise its relative reduction in global power. In effect of De-dollarisation, people wouldn’t need dollars in foreign exchange reserves if they don’t need them for trade. In the foreseeable future, technology and multi-currency trading will render reserve currencies obsolete and imperialist. The dollar will not simply vanish, but its hegemony will. The US dollar will be one of the key currencies, alongside the Euro and the Chinese Yuan. There is no need for a middleman for trade and commerce that could be accomplished in local currencies.
Using the dollar also implies countries being required to keep dollars in foreign exchange reserves, paying commissions, being subject to US diktats in fear of sanctions, surrendering sovereignty, and adding difficulty to doing business. If you run out of the US dollar, you must petition the IMF to enforce austerity and privatisation. This will allow Western firms to pillage your country. If you are a developing country, you must approach the IMF and the World Bank.
In the new world order by de-dollarisation, you buy oil in your home currency!
Alternatively, use another currency, such as the RMB. China will not only give you money but also create the infrastructure you require as a growing country. It is important without becoming a major global reserve currency, the Chinese Yuan may and will become a global trade currency. Otherwise, true liberty would remain distant. A future in which any person in any country can trade directly and instantly with anyone else on the planet
The Dollar Trade Is Never Free
Because the US dollar is the world’s reserve currency, the US has a distinct advantage. Every country requires the US dollar to complete trades for large purchases such as oil and gold. They are unable to utilise their currency. This is significant because it implies that all other countries must work hard to earn US dollars, hence increasing demand for USD. The dollar is used as a sanctioning tool. The most serious challenge to the dollar’s standing as a global currency reserve is its weaponisation.
For example, when the US froze $600 billion in Russian reserves in a couple of days, it signalled to other countries that the US could use its currency as an instrument for foreign policy. As a result, more countries are becoming suspicious of US hegemony and are gradually but steadily abandoning the US dollar as a reserve currency. Furthermore, because the West continues to employ sanctions as a tool in international policy, expecting foreign loans to be paid in dollars may be unrealistic. All of the US sanctions and bullying will be rendered ineffective. Considering how most of the world is already ignoring US/EU sanctions against Russia.
De-dollarisation and Ukraine War
This de-dollarisation has gained momentum in recent months, particularly since the Russia-Ukraine conflict began in February. Since the end of World War II, the US dollar has been the world’s main currency. USD denotes roughly half of all international trade, international loans, and worldwide debt securities. In 1944, the US dollar was designated as the world’s official reserve currency. The conclusion was reached by a group of 44 Allies forming the Bretton Woods Agreement.
Western governments froze $300 billion of Russia’s foreign currency reserves last year to punish Russia for its invasion of Ukraine. Approximately half of the total, and barred Russian banks from using the Swift international payment system. Moreover, the ongoing crisis between Russia and Ukraine shows sanctions’ limits as a coercive tool. Despite being excluded from the international financial system SWIFT and having its $640 billion reserve frozen by the US, Russia continues to launch missile strikes against Ukraine.
Many countries no longer want the dollar to be so important.
Countries openly proclaim plans to avoid using USD in trade (particularly when purchasing oil), e-commerce, and tourism. Not just Russia, but also US allies and partners such as India, Africa, ASEAN, Latin America, Saudi Arabia, and even certain European countries, have jumped on board.
Already, Yuan and Ruble account for two-thirds of Russia-China trade. In addition, Russia will use the Chinese Yuan in its trade with Asia, Africa, and Latin America.
Within a few months, Russia disconnected from the dollar and euro and moved to Yuan and Ruble’s for trade with China. India, sanctioned by the US, has completely abandoned the US currency to settle commerce with China and Russia. Saudi Arabia, OPEC’s dominant member, has also stated that it will forsake the Petro-dollar in favour of the Petro-Yuan. This essentially means that oil trades will be completed in Yuan rather than USD.
Brazil and China recently agreed to trade in the Chinese Yuan and the Brazilian Real.
Once Russia and China have established safe and simple alternatives to non-dollar and non-Western systems, everyone will begin to use them, at least for some of their dealings. The BRICS group is expected to introduce its own gold/commodity-backed currency. Already, more than 70 countries include Chinese RMB in their foreign exchange reserves. Brazil recently declared that the Yuan had eclipsed the Euro in the Brazilian FOREX market.
“Petroyuan” not “Petrodollar”!
China bought natural gas (LNG) in Yuan! For the very first time. The petrodollar’s relevance is beginning to wane, as Saudi Arabia has expressed an interest in hedging and diversifying its security through normalising relations with surrounding countries. Furthermore, China presently purchases 25% of Saudi Arabia’s oil exports and has recently agreed to settle some portions of the oil deal in Yuan to diversify away from the dollar.
Just a few years ago, such a move would have been inconceivable. Oil trading in multiple currencies is anticipated to increase as more countries, such as Russia and India, begin to trade in Rubles or Rupees rather than dollars.
