Why So Many Countries Are Abandoning the Dollar

Recent headlines paint a worrying picture for the future of the dollar: "The day of the dollar is over," "The post-dollar world is about to emerge," and "The age when the dollar was dominating will also be the end of the U. S. hegemonic rule. "" As the phrase “dedollarisation” seems to trigger a panic among you, changing your dollars into something else, take a moment and explore the situation and reasons behind it, which have gained extreme popularity. ”

Like the pound sterling that made a similar shift in the early 1900s. As a consequence of the economic issues which occurred after the First World War, Great Britain had to give up its role as the world's reserve currency, and the US dollar became the new king. World War I and II left the USA with minor impact and a stronger economy which was followed by the Bretton Woods Agreement in 1944. This agreement tied the other currencies to the dollar, which was tied to gold in turn. The goal was to secure the international trade scene, mainly based on the US dollar sovereignty after the war.

Dollar's paramountcy brought US about a whole set of benefits. It was capable of inflicting influence abroad, gaining trade privileges, and profiting from the seigniorage—the difference between the cost of currency production and its face value. US held the power of economic and geopolitical leverage since its ability to demand dollars gave it the power throughout the 20th century.

These days, some states have been slowly depriving the dollar of its position as the most preferred currency. As instance, in the year 2023, Suleiman Al-Alyan who is a Saudi Arabia Finance minister announced to the public that the country is open to deal in currencies other than the dollar, a 48-year year businessThis is a significant shift as Saudi Arabia and China have a strategic partnership that cover trade between them as China is the largest trading partner of Saudi Arabia and key player in the new Silk Road . This undertaking is to add vibrancy in the economy of the country, which is almost fully oil-export based.

The fact that China is exerting growing influence in the Middle East together the strained US-Saudi relations have resulted in negotiations on dollars benchmarking. Moreover, the Middle East Mediation between Iran and Saudi Arabia is a case of a growing Chinese influence over the place where the US power lessens.

The US has long created the financial conditions to exert global economic pressure by the way it reigns over the dollar. To put it in context, it stopped transferring $300 billions of Russian central bank's reserves after the attack in Ukraine. However, this decision gained much support among the western countries whereas it caused concerns to the other countries. Escalation of the US's involvement in applying sanctions and the power to buy and sell dollar for its interest have made other countries consider the dollar as a weak spot. They consider such a situation to be a threat and may not show any kind an ungrateful response or offensive actions against the US if their interests are not aligned with the US.

A lot of other countries, especially previously known as "the global south" and Middle East, look at the Russia-Ukraine conflict from the different perspective compared to the West. Their view usually is that this is nothing but a proxy war between big powers and they are skeptical in the motives of the US. There were also statements from the Indian foreign minister on how Europe has the attitude that its problems are the world’s problems while at the same time, they are not paying attention to the rest of the world.

This thought is similar to the BRICS conference in 2022 (14th BRICS Summit) held that year which was attended by Vladimir Putin, who made a call for the creation of a new world currency standard. The European Council on Foreign Relations stressed that more and more countries not on the Western side of the globe imagine a multipolar world rather than a bipolar one dominated by the US and its allies.

Argentine payment for its import from China in yuan, indicating the trend itself. The country's economy minister noted that the country Foreign reserves should be maintained ably amid the economic challenges. Argentina is targeting paying approximately $1 billion of its import invoices in yuan, decreasing its vulnerability to the greenback.

Brazil provides another example. The monetary neutrality of the Brazilian President Luiz Inácio Lula da Silva in the discussion of the Ukraine conflict is linked to a more profound transformation in the practice of economic independence from the dollar. In 2023, Brazil declared deployment of yuan in some of its transactions, as President Lula visit to China and the presence of the BRICS bank enforced the move. Lula confronted with the question as to why all global trade should be denominated in the US dollar he pushed for the more active use of the national currencies in international trading.

The international trade environment displaying a shift towards the dollar due to domestic and foreign political risk factors is a manifestation of a new general pattern of uncertainty. The states are finding the argument of the dollar hegemony less convincing and delve into the various options of the expansion of this direction as a result of a kind of earthquake on the context of their economics. Despite the dollar being quite influential in the world of global finance, the current momentum in favor of de-dollarisation implies that the dominance of the dollar may eventually be eroded by a multipolar currency setup. This situation which is constantly changing underlines the necessity of understanding the complex environment in which these interactions take place as well as how they can be potentially harmful for the future of global trade and economic stability.