For more than seven decades, the US dollar has been the backbone of the global financial system. From oil contracts and global trade to central-bank reserves, the greenback has enjoyed a level of dominance no modern currency has matched. But that dominance is now being questioned. A growing number of countries are actively trying to reduce their reliance on the US dollar, a trend widely referred to as de-dollarization.
So, is the US dollar truly losing its grip on the world economy, or is its decline being overstated? In this article, we will highlight whether de-dollarization can uproot the US dollar’s hegemony and remove it from the top position in the overall currency and monetary market. A move many fear could reshape global finances as we know them and usher the world into a new financial era.
Also Read: US Dollar Hits Worst Drop Since April: Will It Recover Soon?
De-Dollarization: Will the Axe Fall on the US Dollar’s Neck?
The axe has been hanging above the US dollar’s neck since 2022 after the White House imposed sanctions on Russia. Since then, developing countries kick-started the de-dollarization agenda to reduce US dollar dependency. The steps taken to end reliance on the currency are:
- Use local currencies for cross-border transactions.
- Diversification of central bank reserves with gold.
- Forge new trade policies where the US dollar has no role.
- Test new payment systems without incorporating the USD.
- Explore alternative payments in bilateral trade deals.
For a start, most of these ideas are working and have delivered the desired results, except that the new payment system is yet to make headway. These are small wins compared to the mighty greenback that is the backbone of the global economy. The scale of the de-dollarization agenda is small, as 90% of all transactions are settled in the US dollar.
Bottom Line: Will the Greenback Lose Its Crown?
De-dollarization and the anger against the US dollar are real. But this is evolutionary, not revolutionary. This is simply because of the fact that no real currency has emerged to take its place. The euro, pound, and franc are unable to provide a challenge, despite being right below the greenback. Even the Japanese yen, Chinese yuan, and the Indian rupee are unable to beat European currencies, let alone the USD.
In conclusion, de-dollarization could make the US dollar less dominant, but its place at the top will remain, as long as no other currency is seen as equal. Until then, the greenback will still sit on the throne, wear that crown, and govern the world, even if developing countries like it or not, as that’s the unbending reality.
