Why the dollar is losing global dominance: 3 reasons From Investing.com

Investing.com – The US dollar is gradually losing its dominant role in the global economy. A lot of efforts were made for this by those countries against which the United States and other Western countries imposed sanctions. The current agenda discusses ways to replace the use of the dollar with other national currencies as reserves, writes Business Insider.

But not only sanctions, but also US monetary policy itself, the strength of the dollar and structural changes in the global oil trade contribute greatly to this.

Since World War II, the dollar’s dominance has waned. But this path has not yet been completely completed, since, according to the International Monetary Fund, about 60% of international reserves are stored in assets denominated in dollars.

A number of countries, such as Brazil, Argentina, Bangladesh and India, are actively using their national currencies, as well as for trade and payments.

There are 3 reasons why countries around the world are trying to move away from dollar dominance:

1. US monetary policy influences the rest of the world too much

The country itself is the main issuer of the world reserve currency – the dollar, which still dominates international trade and payment systems, and therefore its importance cannot be overestimated. The so-called “exorbitant privilege” of the dollar, as ex-French President Giscard d’Estaing dubbed it, is that the United States will not face a crisis if it fails to pay off its national debt when the value of the dollar plummets, because it can easily print more money. This forces all other countries to monitor and depend on US economic and monetary policies to avoid spillover effects on their economies.

2. A strong dollar is becoming too expensive for developing countries

With a strong dollar relative to other world currencies, imports become more expensive for developing countries. This problem has befallen Argentina’s agricultural economy, where political pressure and declining exports have contributed to falling dollar reserves, a weakening of the peso, and rising inflation. The country has even started paying for Chinese imports in yuan instead of dollars. For countries like Brazil, if the dollar rises and access to it becomes difficult, the central bank will simply have to look for alternatives. It is therefore not surprising that the President of Brazil was one of the most ardent supporters of the creation of alternative currencies for trade settlements within the BRICS framework.

3. Global trade and oil demand are diversifying

The oil exporting countries of the Persian Gulf, which used the dollar for trade payments, contributed significantly to the strengthening of the dollar. This agreement itself dates back to 1945, when Saudi Arabia and the United States entered into an agreement under which Saudi Arabia would sell its oil to America only for dollars. In return, the kingdom reinvests excess dollar reserves in US Treasury bonds and stocks. But later the United States itself began to export shale oil and began to develop its own energy sector.

Oil exporters, who play a decisive role in the status of the dollar, will have to reorient themselves to other countries and their currencies, focusing not only on economic issues, but also on geopolitical ones.

— Materials from Business Insider were used in preparation

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