There is a storm gathering momentum against the world reserve currency( USD). These countries, Brazil, Russia, India, China & South Africa are planning to float a new currency to settle international trade payments to challenge the global reserve status of the US dollar.
The bloc of the five nations, known as BRICS, is likely to jointly decide on floating a new BRICS currency during its next summit in August, 2023 to be held at Johannesburg in South Africa.
The US which enjoyed the global superpower status post-World War 2 is today being challenged by BRICS. Efforts in this direction seem to be close as the BRICS embarks on expanding the bloc with a goal to dominate world trade in the future .
The BRICS group took a massive step with the establishment of the New Development Bank in 2014, set up with $50 billion in seed money. The New Development Bank floated assumes significance as it provides competition to the International Monetary Fund (IMF), an organization known for conducting operations based on political interest of the developed west.
The Chinese government is said to be pushing nations around the world to join the bloc and accept the new gold backed currency BRICS with the intention of dethroning the U.S. dollar from its global reserve status.
Russia and China are also said to be fast-tracking a payment technology that could make trading with the yet-to-be-released BRICS currency easier. These two countries are encouraging the world to get rid of US Dollar. So every country is worried about the future of its reserves and thinking what to do in uncertain financial situation. De-Dollarization comes to mind
What is ‘De-Dollarization?
De-Dollarization, a term that has gained considerable attention in the financial landscape, refers to the process of reducing or eliminating the reliance on the United States dollar (USD) as a primary medium of exchange and store of value in global transactions.
It encompasses various initiatives and strategies undertaken by countries and institutions to diversify their currency holdings, promote alternative currencies, and foster regional financial integration.
The significance of De-Dollarization lies in its potential implications for global economic dynamics, financial markets, and geopolitical relationships. As the world’s dominant reserve currency, the USD has provided numerous advantages to the United States, such as lower borrowing costs and the ability to influence global monetary conditions.
However, this privilege has also generated concerns among some countries, leading to a desire to reduce their exposure to the USD and the associated risks.
Factors of De-Dollarization interest
Several factors contribute to the growing interest in De-Dollarization. First, geopolitical tensions and trade disputes have sparked discussions about the vulnerability of countries heavily reliant on the USD.
Second, the expansion of regional economic blocs and the strengthening of intra-regional trade have fostered efforts to establish regional currencies as alternatives to the USD.
Additionally, the emergence of digital currencies, including cryptocurrencies and central bank digital currencies (CBDCs), has prompted debates about their potential to challenge the USD’s dominance.
While De-Dollarization remains a complex and multifaceted phenomenon, its implications are not uniform across countries and sectors.
Some nations seek to diversify their reserve holdings by increasing allocations to other major currencies, such as the euro, yen, or Chinese yuan, while others aim to promote their own currencies as regional or global alternatives.
Nevertheless, the process of De-Dollarization is gradual and subject to various economic, political, and regulatory considerations.
For investors and financial institutions, monitoring the developments related to De-Dollarization is crucial for assessing potential risks and opportunities. Changes in currency dynamics and shifts in global reserve holdings can impact exchange rates, interest rates, and investment flows.
Consequently, market participants need to stay informed about evolving trends in De-Dollarization and adjust their strategies accordingly.
In conclusion, De-Dollarization represents a notable trend in the global financial landscape, driven by a desire to reduce dependence on the USD Dollar and explore alternative currency arrangements.
While the process is complex and its outcomes uncertain, it warrants attention from various stakeholders due to its potential implications for global economic and financial dynamics.
(You should watch out the De-Dollarization process and its impact in the financial world.) The end.
Author: Mohamed Mohamud Adde is an academic and political expert in Somalia
HBN NEWS DESK