Several countries across the globe have been teaming up to bring down the reliance on the US dollar. The greenback has held the reserve currency status for the longest time now. The dollar is one among the currencies in which the majority of the globe’s international transactions are carried out in. But a financial trend that has been gaining steam for several years now is de-dollarization. While the dollar has been the country’s superpower, minimizing its reliance could emerge as a major disadvantage. But can the dollar ever lose its power?
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Countries Part of The De-dollarization Initiative
The BRICS nations, which include Brazil, Russia, India, China, and South Africa, have been leading this initiative. These countries have time and again pitched the idea of creating a new alternate currency for trade. In addition, they were seen encouraging the use of carrying out trade in local currencies instead of the US dollar. Meanwhile, Iran, China and Russia primarily intend to reduce their dependence on the dollar to avoid sanctions. Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates have joined the BRICS movement in recent years.
Along with this, ASEAN countries that include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam are also in talks to abandon the dollar.
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Potential Hurdles
While this seems like a strong initiative, it could be presented with several trials. In the world, the US financial system is regarded as one of the most trustworthy. Many rising economies struggle with economic uncertainty, poor regulatory frameworks, or political instability, which devalues their currencies in international trade. As the most liquid currency in the world, the US dollar is easily traded, swapped, and utilized in a variety of financial markets.
More recently, the current President of the US, Donald Trump was seen threatening the above-mentioned countries with tariffs. He said,
“We are going to require a commitment from these seemingly hostile Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or they will face 100% Tariffs.”
The chances of de-dollarization cannot be negated. But it could take a long time to come into play. Speaking about the same, Joyce Chang, the Chair of Global Research, J.P. Morgan, previously said,
“Diversification away from the dollar is a growing trend, but we find that the factors that support dollar dominance remain well-entrenched and structural in nature. All in all, meaningful erosion of dollar dominance is likely to take decades.”
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