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Why So Many Countries Are Dumping the Dollar

Decline of the dollar around the globe

By sunil kumarPublished 2 months ago 4 min read
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Why So Many Countries Are Dumping the Dollar
Photo by Alexander Grey on Unsplash

Recent headlines paint a worrying picture of the world. One claims that the dollar is finished. Another suggests that America's dominance in the world is over. And the most alarming headline was about how America's hegemony will soon come to an end.

One reason why some countries are declining to use the US dollar lately is because of "dedollarisation." In the early part of this century, the same thing happened to the British pound. As many of you know, after World War I, Britain's economic power decreased while it was waging war. At the same time, The USA emerged from WWI in a much stronger position and became even more powerful after WWII.

In 1944, the Bretton Woods Agreement was signed which established a fixed exchange rate for currencies. This meant that countries wouldn't get into currency wars, whereby they might devalue their own currency in order to gain an economic advantage. In short, the agreement was made to make the global economy more stable. The International Monetary Fund (IMF) was created for this purpose - to give countries financial assistance when needed.

Following the turmoil of the world wars, the dollar became the reserve currency proved to be highly advantageous for the USA. The dollar ascended as the dominant force in the economic landscape as the USA emerged robustly throughout the 20th century, and its demand soared. Virtually everyone required the dollar, which the US controlled, enabling the USA to wield significant influence over other countries.

In recent times, there has been a notable trend in several countries shifting away from the dollar, opting to exchange their reserves for gold at an astonishing pace. Furthermore, these countries are increasingly reluctant to conduct certain trades using the dollar as the preferred currency. This development raises the question: what is the reason behind this shift?

One compelling example of this trend occurred in 2023 when Saudi Arabia's Finance Minister, Mohammed Al-Jadaan, surprised the world by expressing openness to conducting oil deals in currencies other than the dollar. It's noteworthy that Saudi Arabia had exclusively traded its oil in dollars for a significant period of 48 years. China is a key player in this context, as it purchases about a quarter of all Saudi Arabia's oil exports, making it Saudi's largest trading partner. Over time, their relationship has grown closer, especially with China's extensive investments in Saudi Arabia's development projects, including their significant involvement in China's ambitious Belt and Road Initiative. It appears that while the relationship between Saudi Arabia and the US has encountered some strains at times, the ties between Saudi Arabia and China have strengthened, potentially influencing their currency preferences.

China's involvement in brokering deals in the Middle East comes at a time when the US' relationship with several countries in the region has been unpredictable and strained. In response to potential conflicts between the US, China, and Russia, some nations in the Middle East may be seeking to diversify their economies and reduce their reliance on the US.

Given that the US wields significant control over the world's reserve currency, it makes sense for these countries to consider alternatives and forego using the dollar. The term commonly used in this context is "weaponize" the dollar, implying that the US's ability to use its currency as a tool of influence or punishment may be motivating other nations to explore trading in different currencies.

The geopolitical landscape and the shifting dynamics between global powers are prompting countries to be cautious and strategic in their economic dealings. Diversifying away from the dollar can provide some protection against potential adverse effects stemming from conflicts and tensions between major world players like the US, China, and Russia. As a result, various countries may increasingly opt to conduct trades in alternative currencies to safeguard their economic interests and autonomy.

The idea of BRICS (Brazil, Russia, India, China, and South Africa) creating a "common currency" has been a topic of discussion. Additionally, there is a growing interest among other countries to join the group, indicating its increasing appeal on the global stage. As more nations show interest in becoming part of BRICS, it is reasonable to expect that its influence and importance may expand in the near future.

With the potential emergence of a BRICS common currency and more countries seeking to align with the group, questions arise about the future status of the US dollar as the global reserve currency. While it is difficult to predict precisely, it is indeed possible that the dollar's position as the dominant reserve currency could be challenged and potentially phased out over time.

As the world economic landscape evolves and geopolitical dynamics shift, the global financial system may see changes that could lead to a decreased reliance on the dollar. However, the process of transitioning to a new global reserve currency, whether it be a BRICS-based currency or another alternative, is a complex one that would require significant time and careful consideration from the international community.

Ultimately, the future of the dollar as the global reserve currency will be influenced by various economic, political, and strategic factors. While it is easy to imagine scenarios in which the dollar's prominence diminishes, it remains to be seen how quickly such changes might occur and what alternative arrangements may emerge.

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About the Creator

sunil kumar

I am skilled and dedicated content writer with a flair for crafting captivating and informative content. With a passion for words and a keen eye for detail, I has honed the art of storytelling to engage readers across various platforms.

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  • Test2 months ago

    The quality of this writing was superb. I loved it and couldn't spot any issues. You're welcome! May your day be filled with perpetual smiles!

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