The U.S. dollar is the world’s greatest reserve currency, with around 63% of global reserves held in it. It also enjoys a special position as the fiat currency – or a currency widely relied upon by businesspeople worldwide – and as the primary currency in which international bilateral trading is done, even when the U.S. is not a party in the said deal. All this has given the U.S. dollar, and hence the country it represents a lot of unnecessary clout which has enabled the U.S. to enjoy a lot of political benefits over other countries, which is often unwelcomed by the said countries.
The U.S. dollar is deemed by experts as a currency that will continue enjoying its superior status for the next few decades and more, provided that the mentioned economic conditions persist. The clout of the U.S. dollar and the U.S.A. – that I mentioned is often unwelcomed by the countries that find it exasperating to have their economies and their governments unnecessarily meddled with and interfered in – has not gone unnoticed by world leaders, the countries whose economies have been affected by the dominance of this dollar, even more so in the past year. Steps have been taken by world leaders to eradicate the dictatorship of the USD from their economies in a campaign that has now unofficially become known as ‘Ditch the Dollar.’
Ditch the Dollar isn’t actually a movement, rather a trend that has been seen in many of the recent bilateral and trilateral trade and economic agreements made by states mostly lying in Asia and the Middle East. This trend of de-dollarization was initiated nearly one year ago, when in a meeting with the Russian president Vladimir Putin, the Supreme Leader of Iran Syed Ali Khamenei proposed the idea on Nov. 1st, 2017 by saying: “We can nullify US sanctions, isolate it by various methods such as eliminating the dollar, replacing it with national currencies in bi/multi-lateral economic transactions …” President Putin and Ayatollah Khamenei were both on the same page with this topic. The idea was particularly pleasing to Mr. Putin because “The United States wants to interfere in all matters of the world and the region; and, to achieve its goal, if necessary, it even ignores the interests of its allies.”
Ever since then, many states have followed suit looking at the obvious perks that eliminating the use of the U.S. dollar has brought to their economies. When President Donald Trump decided to pull out of the JCPOA, sources in the EU said that they are “… privy to the information that the EU is going to shift from dollar to euro to pay for crude from Iran.” In August 2018, Russian Deputy Foreign Minister Sergei Ryabkov said in an interview with International Affairs Magazine that, “the time has come when we need to go from words to actions, and get rid of the dollar as a means of mutual settlements, and look for other alternatives.” Russian Energy Minister Aleksandr Novak noted that other countries were also interested in taking such a step, when he remarked, “There is a common understanding that we need to move towards the use of national currencies in our settlements. There is a need for this, as well as the wish of the parties.” According to him, the “other parties” meant Iran and Turkey. “We are considering an option of payment in national currencies with them. This requires certain adjustments in the financial, economic, and banking sectors,” he said. According to RT, the Kremlin said it is interested in trading with Ankara using the Russian ruble and the Turkish lira and that India has also vowed to pay for Iranian oil in rupees.
In the same month of August, Russian Foreign Minister Sergei Lavrov and his Turkish counterpart Mevlut Cavusoglu said they were interested in using national currencies, not the U.S. dollar, in bilateral trade. China, as the world’s second-largest currency, has not stayed behind either. The Russian Foreign Minister further said that “Not only with Turkey and Iran, we’re also arranging and already implementing payments in national currencies with the People’s Republic of China.” According to Mint Press, there have already been settlements in national currencies between Russia and the BRICS – the bloc that also includes Brazil, India, China, and South Africa. Elsewhere across the world, Nigeria has introduced China’s Yuan as an alternative trading currency to the U.S. dollar.
The latest country to get on board with dollar-ditching is Pakistan. In a recent meeting with the Chinese officials, Prime Minister Imran Khan agreed with his Chinese counterpart to use local currencies instead of U.S. dollars in bilateral trade.
Economist Alexandre Kateb, the president of Competence Finance SAS said that, “When Iran was previously under sanctions from 2012 to 2015, it established new mechanisms to bypass US-related financial institutions, such as barter exchange and to replace the dollar with other currencies, such as the renminbi in its bilateral trade with China or the euro in its trade with European countries.”
The recent trend of ditching the dollar isn’t limited to trade agreements. Europe’s central banks have reportedly been replacing their reserves in U.S. dollars with those in Chinese yuan.
While all these developments, if continued, might seriously challenge the dominance of the U.S. dollar as a world reserve currency and as an economic and political tool at the dispense of the US government, it is beneficial for the countries undergoing de-dollarization. The mainstay of these recent developments was efficiently summed up by Timothy Alexander Guzman, an independent researcher, and writer in the following words.
“It is no secret that US leadership uses the dollar as a weapon in its economic warfare against those countries, which reject bowing before Washington’s political elite. The US’ arm-twisting policies prompted the world’s nations, especially oil producers, to seek a substitute for the dollar.”
He further added that “The de-dollarization is an obvious backlash against the US’ longstanding policy of oppression of its geopolitical rivals. In fact, Washington has shot itself in the foot by imposing restrictions on Russia and Iran’s trade. No one likes a bully.”
Featured Image Via Flickr / Images Money