De-dollarization is the talk of the town in the financial sector, most importantly, emerging from developing countries. Every emerging economy is considering various ways to cut back on the US dollar, without having a concrete plan on what to do next. This makes it more difficult for their agenda move forward as the ideology is limited to only a few deals. They inadvertently end up paying in US dollars to export their goods, as nobody accepts their local currencies.
So much for the de-dollarization banter, that only one out of 10 trade deals happens in their local currencies. Whether they like it or not, the US dollar remains at the center of it all, and without it, let alone trade, their country fails to progress. But how, you may ask? The answer is on the wall – even developing countries don’t accept the local currencies of other developing countries. It’s simply because their currency has no power and can remain a dead investment. It offers no quick liquidity, and a minor market inconvenience can make it dip in the charts.
A handful of Wall Street analysts have been urging traders since 2022 to diversify their investments into other currency-denominated bonds. The reasoning is that the US dollar is on its way down, while the other currencies are stabilizing in the forex markets. In addition, ING analysts have also been playing the de-dollarization bugle with its ‘Sell America’ argument, citing the 9.5% decline of the US dollar. There’s truth to their claims, but that’s not the whole story on how the greenback functions.
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Why Is De-Dollarization Dead?
The latest data published by the US Treasury International Capital, the net foreign inflows into US-led assets hit $212 billion. This is the highest ever recorded number, with the second and third highest being $190 billion and $187.1 billion in the previous years. The development shows growing interest in US-denominated assets compared to any point in time before. This shows that de-dollarization is not dead, but is definitely in critical condition and sleeping in the ICU.
