2023 Banking Crisis: The de-dollarization trend in the world

In recent years, there has been an increase in the number of countries seeking to reduce their reliance on the US dollar in international trade. Russian sanctions have accelerated the trend, forcing Russia and its trading partners to seek alternatives to the dollar.

Fear of US sanctions is one of the main reasons why countries are abandoning the dollar. The United States has used its control over the dollar to punish countries that do not support its foreign policy goals. As a result, countries such as Russia and China have sought to reduce their reliance on the dollar in order to avoid US sanctions.

Another reason for the de-dollarization trend is China's growing role in the global economy. China has been encouraging the use of the yuan in international trade, and many countries are beginning to recognise the advantages of using the yuan as an alternative to the dollar. China has worked to internationalise the yuan by making it easier for foreign companies to use it and by establishing offshore yuan trading centres in cities around the world.

Other countries, in addition to China, are promoting the use of their currencies in international trade. The European Union, for example, has been attempting to promote the use of the euro in international trade, and several countries have signed agreements to use the euro rather than the dollar in their trade with Iran.

However, the de-dollarization trend is not without risks. As more countries abandon the dollar, demand for dollars falls, resulting in a decline in the currency's value. This could lead to higher inflation in the United States as imports become more expensive, as well as make financing the country's large current account deficit more difficult.

Finally, the de-dollarization trend is a reaction to growing concerns about the United States' use of the dollar as a tool to enforce its foreign policy objectives. While this trend is likely to continue in the coming years, it is critical for countries to carefully manage their exposure to various currencies in order to reduce the risks of currency fluctuations and other economic disruptions.

Source:
Gonzalo Lira, 30 March 2023, Twitter conversation, @GonzaloLira1968