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De-dollarization is the transition away from usage of the US dollar and towards other currencies. It is a global macroeconomic trend with geopolitical ramifications, illustrating the decline of US imperial hegemony and the rise of multipolarity on the world stage.[1]
Since the establishment of Bretton Woods system in 1944, and particularly since 1971, when the United States abandoned the gold standard, the US dollar has been used as the medium for international trade. The dollar reserves of a country have typically been seen as a measure of that country's wealth and power.[2] The dollar is used predominantly in cross-border trade settlements - of which the dollar has comprised 79% of settlements until 2019[3] - as well as global energy transactions, such as the oil trade.
As the power of the United States diminishes and other states rise in competition, the power of the US dollar is correspondingly beginning to diminish. Many countries are increasingly diversifying their central bank reserves, both due to concerns about being cut out of the global economic system if they draw the ire of the United States, and due to rising interest rates and import costs. Additionally, as the external debt stocks and debt service payments of many developing countries are denominated in the US dollar, it is in their material interests to eventually break free of this system to regain financial autonomy.[4]
In 2021, the IMF reported that 59% of reserve bank holdings are now in the US dollar, which is the lowest share in 25 years.[5] Therefore, in recent years, several countries are transitioning to trade in national currencies,[6] using bilateral trade agreements. This movement away from the US dollar has been greatly spurred on by the 2022 Russo-Ukrainian conflict. The Chinese yuan is also increasingly being used, though it is currently unlikely that the yuan will ever become a reserve currency as it would have substantial negative impacts on the Chinese economy. Other currencies could also be used to substitute the US dollar when trading oil and other commodities, as a central bank reserve asset, and for dollar-denominated assets.
History
2000s
In October of 2000, Iraq announced it would price its oil sales in the Euro, moving away from the US dollar which Saddam described as "the currency of the enemy."[7][8] The United States invaded Iraq three years later in 2003, after which the oil markets were reverted to being priced in USD.
In 2009, Muammar Gaddafi, leader of Libya and President of the African Union at the time, suggested to the States of the African continent to switch to a new currency, independent of the US dollar: the gold dinar.[9][10] Two years later, in 2011, NATO invaded Libya and murdered Gaddafi.
2010s
Russia and China's central banks are among the largest buyers of gold in the late 2010s and into the 2020s. This shows a clear preference for accumulating hard assets as the perception of dollar-weakness (and US weakness) grows.[11]
In 2017, Venezuela was sanctioned after dropping the US dollar.[12]
2020s
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is the digital clearinghouse protocol for international inter-bank USD transactions, all transactions of which are cleared through the New York Federal Reserve Bank. SWIFT has been politicized and used as a financial weapon against states which find themselves in the poor favor of the USA.
In 2021, Russia, China, and the EU are all increasingly interested in reducing their reliance on dollars in their trade.[13][14]This comes after the US threatened to suspend Russia's participation in the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system for political reasons.[15]
Following the 2022 Russo-Ukrainian conflict, Western nations voiced support for censoring Russia from the SWIFT system.[16] Weeks later, the Eurasian Economic Union (EAEU) and China are confirmed to be working on an "independent international monetary and financial system"[17][18] In 2022, the use of dollars for Russia–China trade dropped from 80% to 40% and yuan use rose from 1% to over 40% following Western sanctions.[19]
Increasingly, international investors are beginning to realize the risks associated with holding USD which are constantly debased through money printing (also known as quantitative easing, or QE). Investors recognize that Russia and China are propelling the global de-dollarization process.[20]
In 2022, Brazilian president-elect Lula da Silva proposed creating a new currency for international Latin American trade called the Sur and strengthening UNASUR. Ecuadorian economist and politician Andrés Arauz said Latin America should reject the IMF and help African countries relieve their debt.[21]
More reading
- De-dollarization: The revolt against the dollar and the rise of a new financial world order[22]
References
- ↑ Gal Luft (2018-08-28). "The anti-dollar awakening could be ruder and sooner than most economists predict" CNBC.
- ↑ Sangita Gazi and Christabel Randolph (2023-09-26). "De-dollarisation and Internationalisation of Other Currencies: Geopolitics and Implications for Dollar Diplomacy" Developing Economics. Archived from the original on 2023-10-24. Retrieved 2023-10-24.
- ↑ Ian Bezek (2023-05-19). "De-dollarization: What Happens if the Dollar Loses Reserve Status?" US News. Archived from the original on 2023-05-24. Retrieved 2023-10-24.
- ↑ "World Economic Situation and Prospects: October 2022 Briefing, No. 165" (2022-10-03). United Nations Department of Economic and Social Affairs. Archived from the original on 2023-10-24. Retrieved 2023-10-24.
- ↑ Serkan Arslanalp and Chima Simpson-Bell (2021-05-05). "US Dollar Share of Global Foreign Exchange Reserves Drops to 25-Year Low" IMF. Archived from the original on 2023-04-24. Retrieved 2023-10-24.
- ↑ Helmut Reisen (2009-06-20). "Shifting wealth: Is the US dollar Empire falling?" Vox EU CEPR.
- ↑ "U.N. to let Iraq sell oil for euros, not dollars" (2000-10-30). CNN.
- ↑ "Iraq nets handsome profit by dumping dollar for euro". The Guardian.
- ↑ "Gold Dinar: the Real Reason Behind Gaddafi’s Murder" (2019-05-03).
- ↑ "How Muammar Gaddafi’s Vision for a Debt-Free Africa Led to His Death" (2020-06-29).
- ↑ Valuewalk (2020-11-27). "Central Banks To Keep Buying Gold, Drive The Price" Yahoo Finance.
- ↑ Whitney Webb. "Venezuela Accused Of Drug Trafficking After Dropping U.S. Petrodollar"
- ↑ Divyanshu Jindal (2021-09-18). "Russia, China and EU are pushing towards de-dollarization: Will India follow?" Modern Diplomacy.
- ↑ "De-Dollarization Efforts in China and Russia" (2021-07-23). Congressional Research Service.
- ↑ "Biden Threatens to Cut Russia Off From SWIFT Payment Over ‘Aggression’ Against Ukraine".
- ↑ "Western nations agree to disconnect Russian banks from SWIFT". TASS.
- ↑ Pepe Escobar on Twitter: "...On Friday, the Eurasian Economic Union (EAEU) and China decided to design the project for an INDEPENDENT INTERNATIONAL MONETARY AND FINANCIAL system. ..." (Archived)
- ↑ "The EAEU and China will develop a project of an international financial system" (2022-03-14). Kapital.kz.
- ↑ Ben Norton (2022-12-26). "Russia dropping US dollar for Chinese yuan – and fast" Multipolarista. Archived from the original on 2022-12-27. Retrieved 2022-12-27.
- ↑ Louis Gave (2022-06-29). "De-Dollarization Is Accelerating, Propelled By China & Russia | Louis Gave" Wealthion.
- ↑ Ben Norton (2022-12-01). "Latin America’s plan to challenge US dollar with new currency and ‘regional financial architecture’" Multipolarista. Archived from the original on 2022-12-02. Retrieved 2022-12-04.
- ↑ Gal Luft (2019). De-dollarization: The revolt against the dollar and the rise of a new financial world order.