Adnan Akfrat, chairman of the Turkey-China Business Promotion and Friendship Association, wrote in China Daily on July 5 that as the US dollar’s 80-year dominance in global trade encounters a wave of resistance, the establishment of a more A fair world order is gradually becoming a reality.
Comic author: China Daily Ma Xuejing
Expansion of domestic currency settlement is the general trend
The article points out that the dollar hegemony established by the Bretton Woods system in 1944 is crumbling. Still, the end of dollar hegemony doesn’t mean another currency will gain a similar status in global trade. In fact, the global economy is no longer dominated by hegemony, and a new multi-currency economic order is taking shape, which will gradually replace the US dollar-dominated economic order.
Three factors are crucial to the process of “de-dollarization”: one is to trade with other currencies, the other is to replace the US dollar and the euro with the currencies of developing countries in trade, and the third is to replace the US dollar with other currencies.
Expanding trade denominated in other countries’ currencies is the most important part of breaking the dollar’s dominance. Many countries trade in their own currencies rather than the US dollar. The news keeps coming, such as Iran and Indonesia’s recent announcement that they will trade in their own currencies.
Today, 60 countries use their local currencies to replace the dollar in trade, and even India, which has increasingly close ties with the United States, has signed agreements with 19 countries to settle in local currencies. India, the world’s fifth-largest economy, is pushing to internationalize the rupee to reduce reliance on the dollar for global trade.
The bilateral trade between China and Russia is expected to exceed the 200 billion US dollars mark by the end of this year, and Russia has started to use RMB for settlement, which is another blow to the international currency status of the US dollar. Russian Prime Minister Mishustin said in May that the share of local currency settlement in trade settlement between the two countries has risen from 1/4 in 2021 to 2/3 in 2022. The yuan’s share in Russian import settlements has jumped from 4% in January 2022 to 23% by the end of 2022, according to the Central Bank of Russia. According to another Bloomberg report, the RMB replaced the US dollar as the most traded foreign currency in Russia for the first time in February this year, and the gap between the two is still widening, with the RMB increasingly dominant.
As a member of the BRICS countries, Brazil has a similar situation. Earlier this year, China and Brazil agreed to use their people for trade. The trade volume between China and Pakistan will reach 150 billion US dollars in 2022.
As the second largest economy in South America, Argentina announced in April that it would use RMB to settle imports from China. In May, Bolivian President Luis Arce said he was open to using the yuan for international trade.
In August 2022, Turkey and Russia reached an agreement, agreeing to use the Russian currency ruble to settle part of the natural gas imports from Russia. In addition, Turkey is also working on a deal with Iran to trade in its own currency.
At the Samarkand Summit of the Shanghai Cooperation Organization to be held in September 2022, the leaders of the member states adopted a roadmap for gradually expanding the share of local currency settlements of the member states.
The U.S.’s self-inflicted “de-dollarization” is a foregone conclusion
The article further analyzed that another factor in the gradual reduction of the dominance of the US dollar in global trade is the widespread use of other currencies, such as the renminbi, rupee and ruble. All countries tend to use currencies that are more in line with their own interests for settlement. For example, Bangladesh and Russia have agreed to use renminbi to pay for goods imported from Russia. India has offered to use the rupee when trading with countries that do not have sufficient dollar reserves, notably Sri Lanka, Bangladesh and Egypt.
Saudi Arabia has been in talks with China to accept payments in yuan for oil exports, and other Gulf states are also considering it. In the past, only US dollars were used for oil settlement, but the use of renminbi in global trade is on the rise. In August 2018, Venezuela announced that it would price oil in currencies such as the euro, the renminbi, and the ruble. At the end of 2022, Ghanaian Vice President Mahmoudou Bawumia said that the government is formulating a new policy to use gold rather than US dollar reserves to buy petroleum products.
The dollar’s share in foreign exchange reserves is gradually declining. Bloomberg reported that the dollar’s share of foreign exchange reserves has fallen from 73% in 2001 to 58% in 2023. There is growing momentum for a new international currency to replace the dollar, and the 15th summit of BRICS leaders in August may pave the way for the creation of a new form of currency to facilitate trade among member nations. In Latin America, some countries have agreed to use the new currency, the sur, in trade. Brazil and Argentina, the two giants in Latin America, plan to use Sur to settle their bilateral trade, thereby reducing their dependence on the US dollar.
On top of that, the popularity of digital currencies may further reduce the status of the US dollar, while China is leading the way in the development of digital currencies.
In disputes with developing countries, the United States usually uses its financial strength to do whatever it wants, such as freezing the dollar assets of other countries, and both Russia and Afghanistan have suffered greatly. In fact, the United States is doing everything possible to turn its financial system into a weapon that can severely damage China and Russia. Paradoxically, the weaponization of the dollar is precisely the weakening of its status as an international currency.
The U.S. government’s unilateral actions have exacerbated the dollar’s crisis in the international market, such actions including raising interest rates eight times from March last year to February this year. What the United States has done has led to high exchange rates around the world. Even CNN GPS host Fareed Zakaria admitted that the United States itself is responsible for the “de-dollarization” of global trade.Return to Sohu to see more
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2023-07-05 14:49:00
