DeDollarisation – Is it the end for the Dollar?
Dedollarisation is a process of substituting US dollar as the currency used for (i) trading oil and/ or other commodities, (ii) buying US dollars for the forex reserves, (iii) bilateral trade agreements, and (iv) dollar-denominated assets.
Following the WW1, US Dollar began replacing the Pound Sterling as international reserve currency. After the second World War, U.S emerged even more stronger superpower than before. This led to the Bretton Woods Agreement of 1944 established the post-war international monetary system, with the U.S. dollar ascending to become the world’s primary reserve currency for international trade, and the only post-war currency linked to gold at $35 per troy ounce.
By 1960s, due to high competition between European, Japanese and US exports, there was a large supply of dollars around the world, making it difficult to back dollars with gold. President Nixon ceased the direct convertibility of U.S. dollars to gold in 1971. This ended both the gold standard and the limit on the amount of currency that could be printed.
However, many countries are now looking for an alternative for the international reserve currency. With economic sanctions on Russia due to the Ukraine war, Moscow and Beijing teamed up against the reliance of Dollar. The ruble-yuan trade has increased eighty-fold. Russia and Iran are also working together to launch a cryptocurrency backed by gold, according to Russian news agency Vedmosti.
- In recent months, Brazil and Argentina have discussed the creation of a common currency for the two largest economies in South America.
- In a conference in Singapore in January, multiple former Southeast Asian officials spoke about de-dollarization efforts underway.
- The UAE and India are in talks to use rupees to trade non-oil commodities in a shift away from the dollar, according to Reuters.
- For the first time in 48 years, Saudi Arabia said that the oil-rich nation is open to trading in currencies besides the U.S. dollar.