The global trend of substituting the US dollar with local currencies in the trade of goods and transactions has been on the rise, with countries hoping to reduce their dependence on Washington and prevent it from further exploiting its power and weaponizing its global dollar dominance.
The trend is not very new. China, Iran, Russia, and Venezuela proved earlier that they can live without the dollar. What really matters is that powerful countries such as China, Russia and the European Union are major players in the de-dollarization process today.
These countries not only can avoid being subject to US jurisdiction and sanctions in many cases, but also weaken Washington’s ability to remain the most dominant global power.
China’s emerging Yuan
With the emergence of China as a global power, the role of the dollar as a payment currency has been threatened. According to some analysts, China is developing a cross-border interbank payment system based on the yuan that will link up with the payment systems of other developing countries. With the passage of time, this will reduce the chokehold of the dollar in the SWIFT messaging system.
The most recent of the deals struck on the “de-dollarization process” took place last week between China and Brazil. The two countries agreed to conduct trade transactions in their national currencies, leaving out the US dollar as an intermediary.
The deal came after China and France agreed to conduct their first energy trade in Chinese yuan. China has already reached similar currency deals with other countries including Russia.
It is worth mentioning that the Chinese yuan has surpassed the euro to become the second-largest currency in the foreign reserves of Brazil, South America’s biggest country.
Sanctioned Russia turns to Yuan
Not only did South American countries like Brazil ditch the dollar in their transactions and moved toward China’s yuan, since the beginning of the Ukraine war and the vicious campaign against Moscow, including Western sanctions and excluding it from much of the global financial system, Russians have also turned to the yuan as the currency of choice.
Of course, Russia started prioritizing the de-dollarization in 2014, following the annexation of Crimea and in response to Western sanctions.
According to media reports, the yuan has replaced the US dollar as the most traded currency in Russia, with almost all the big banks offering services and deposits in the yuan.
As Russian President Vladimir Putin described the outcome of his meeting with Xi Jinping in Moscow, “We are in favor of using the Chinese yuan for settlements between Russia and the countries of Asia, Africa and Latin America.”
Global move toward de-dollarization
Meanwhile, the European Union has also been circumventing US sanctions through the use of Euros in its trade with Iran.
European Union’s exports to Iran increased 7% year on year in January 2023, while trade exchanges between the two sides exceeded €400 million over the same month, according to figures by the EU’s statistical office the Eurostat.
Several countries in West Asia and North Africa have also started to move away from the greenback hegemony in recent months, like Iraq, the UAE, Egypt, and Saudi Arabia.
A report published by Elements newsletter said that Brazil and Argentina have been discussing the creation of a common currency since the beginning of 2023, at the time the UAE and India study the option of using rupees to trade non-oil commodities.
Moreover, Indian Commerce Secretary Sunil Barthwal said Indian Rupee will be used in trade between countries that are facing a shortage of dollars or currency failure. He said trade between India and Malaysia can now be settled in INR.
Also, Russia and Iran are cooperating to launch a cryptocurrency backed by gold.
The report also said that Saudi Arabia, for the first time in almost 5 decades, is open to trading in currencies besides the US dollar.
A new currency
Deputy Chairman of Russia’s State Duma, Alexander Babakov, said on March 30 that the BRICS bloc of emerging economies – Brazil, Russia, India, China, and South Africa – was working on developing a “new currency” that would be presented at the organization’s upcoming summit in Durban. The bloc is working on finding ways to reduce dependence on Western currencies, especially the US dollar.
“The transition to settlements in national currencies is the first step. The next one is to provide the circulation of digital or any other form of a fundamentally new currency in the nearest future. I think that at the BRICS [leaders’ summit], the readiness to realize this project will be announced, such works are underway,” Babakov said on the sidelines of the Russian-Indian Strategic Partnership for Development and Growth Business Forum.
BRICS member states account for more than 40 percent of the global population and around a quarter of the global GDP.
Even though many economists say no other currency can dominate over the US any time soon, prominent economists including US economist Nouriel Roubini, who predicted the financial crisis of 2008, do not rule out the eventual demise of the dollar as a reserve currency within a decade.