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 multi-polarity on the world stage.[1]
Below are some specific situations where dollars might be substituted for other currencies:
- Trading oil and / or other commodities (Petrodollar)
- Holding as a reserve asset to ensure central bank capitalization in the form of foreign exchange (forex) reserves
- Bilateral trade agreements
- Dollar-denominated assets
Since the establishment of Bretton Woods system in 1944, the US dollar has been used as the medium for international trade. In recent years, several countries are transitioning to trade in national currencies.[2]
Notable examples
Iraq's use of Euro
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"[3][4] Iraq was invaded by the USA three years later, in 2003, after which time the oil markets were reverted to being priced in USD.
African Gold Dinar
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 American dollar: the gold dinar.[5][6] Two years later in 2011, Libya was invaded by NATO, and Gaddafi was killed.
Central Banks buying gold
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.[7]
Censorship of SWIFT system
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.
Following the 2022 Russo-Ukrainian conflict, Western nations voiced support for censoring Russia from the SWIFT system.[8]
Other examples
In 2017, Venezuela was sanctioned after dropping the US dollar.[9]
In 2021, Russia, China, and the EU are all increasingly interested in reducing their reliance on dollars in their trade.[10][11]This comes after the US threatened to suspend Russia's participation in the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system for political reasons.[12]
More reading
- De-dollarization: The revolt against the dollar and the rise of a new financial world order[13]
References
- ↑ Gal Luft (2018-08-28). "The anti-dollar awakening could be ruder and sooner than most economists predict" CNBC.
- ↑ 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.
- ↑ "Western nations agree to disconnect Russian banks from SWIFT". TASS.
- ↑ 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".
- ↑ Gal Luft (2019). De-dollarization: The revolt against the dollar and the rise of a new financial world order.