Half a century ago, the dominance of the United States Dollar in the international finance and trade system was indisputable. By 1977, the US Dollar reached a peak of 85 per cent as the prevailing currency in foreign exchange reserves; in 2001, this position was still around 73 per cent. But today, it is at approximately 58 per cent. The dominance of the Dollar and the hegemonic position of the United States have for long been intertwined. And the recent global transformations are affecting American’s ability to sustain this: the gradual movement of the centre of gravity from the West to the East, the unravelling complexities of US domestic politics, the growing muscle of the international projection of China and an international assertiveness among the countries of the Global South have restrained the American Dollar’s supremacy and status.
And yet, the currency still holds by far the largest share of global trade, foreign exchange transactions, SWIFT payments and debt issued outside the United States. In fact, Western financial agents, government officials and renowned experts tend to downplay the so-called de-dollarization arguing that a relatively debilitated Dollar doesn’t necessarily mean its demise. Notwithstanding controversial standpoints, it is undeniable that the world system faces more complex, diverse and plural challenges that involve currency competition and new inventive financial pathways.
Resistance against the US Dollar
The so-called de-dollarization in global finance has its landmarks. The launch of the Euro in 1999 was crucial since the European currency, by now, represents 20 per cent of the global foreign exchange reserves. By the dawn of the 21st century, an Asian Currency Unit came to life as well: it represented a salad bowl of 13 currencies from East Asian nations (ASEAN 10 plus Japan, China and South Korea). Along with the successful spill overs of economic regionalisation, Western-led geopolitics also came to be a source of global financial novelties that affected the US Dollar’s pre-eminence.
The growing recourse to a sanction regime against countries such as Iran, especially since 2006, and Russia after the 2014 annexation of Crimea, encouraged alternative currency arrangements. As of today, Washington’s sanctions policy punishes 22 nations. The invasion of Ukraine by Russia in 2022 and the extension of sanctions hampering the use of the US Dollar encouraged even more de-dollarized practices. In response to the decision to disconnect Russia from SWIFT, Moscow advanced bilateral fuel transactions with partial payment in Rubles. Simultaneously, Russia and a group of African countries initiated talks to establish settlements in national currencies, discontinuing both the US Dollar and the Euro. Meanwhile, China is trying to insulate itself from the West and is attempting to internationalise the Renminbi, even though it represents less than 3 per cent of the official reserves worldwide. Moscow and Beijing are coming closer in terms of financial cooperation, France and Saudi Arabia agreed to use the Renminbi in certain oil and gas deals, while Bangladesh became the 19th country to commerce with India in Rupees.
Last but not least, a gold rush is also picking up. As Ruchir Sharma has recently observed, key buyers are now central banks, which are procuring ‘more tons of gold now than at any time since data begins in 1950 and currently account for a record 33 per cent of monthly global demand for gold […] and 9 of the top 10 are in the developing world.’ Besides, some African nations seem willing to trade in currencies backed by rare-earth metals. In the Global South, in fact, there is a growing perception that de-dollarization is a step towards a multipolar world in which new actors, interests and rules interplay. In that sense, it is becoming evident that a multi-currency trading regime is slowly emerging.
How Brazil ‘de-dollarizes’
De-dollarization has been included in Brazil’s foreign policy strategy. Since the inauguration of his third mandate, President Lula da Silva rapidly disclosed the intention of overcoming his discrepancies with Western rule-setting. An adjourned narrative that contests the Global North’s preponderance in the World Order has resurfaced. Demands for inclusive reforms in global governance, the condemnation of geopolitical worldviews leading to securitised methods and military escalation, and the questioning of the Dollar’s dominance in international trade and finance have arisen. In the present context of tensions and rivalries between the Great Powers, Brazil strives to speak of an autonomous voice of the Global South. And thus, Lula has tried to promote peace in Ukraine on the basis of negotiations that recognise the voices of all parties involved in the war.
The Brazilian government has decided to use the New Development Bank as a platform to defend a de-dollarized trade system among its members and with the countries that benefit from NDB credit lines.
Lula’s de-dollarization standing has been stimulated by Brazil’s association with the BRICS, as well as its expanded bilateralism with China. The continuously record-breaking Brazilian-Chinese trade relationship reached a peak of $150,5 bn in 2022 (while the Russia-China trade relationship for the same year was $190,2 bn). As bilateral ties are expanding further, during Lula’s recent state visit to China, novel settlements are being negotiated, aiming to put trade and financial operations on track directly with Chinese Renminbi and Brazilian Reais. Concurrently, the Brazilian government has decided to use the New Development Bank (NDB), the BRICS’ multilateral bank, as a platform to defend a de-dollarized trade system among its members and with the countries that benefit from NDB credit lines. By positioning former Brazilian President Dilma Rousseff as the head of the bank, Lula has upgraded the Brazilian political commitment to this frontline. Most certainly, this will become a reiterated pledge in Brazil’s performance in global governance arenas, with mention to its 2024 presidency of the G20.
It is remarkable how the Lula government has sought a prudent strategy balancing its anti-dollar hegemony signals among its BRICS partners with a constructive presence in a dollar-dominating terrain such as the Interamerican Development Bank (IDB). By holding the presidency of the IDB since last December, supporting the candidacy of Brazilian ex-IMF official Illan Goldfajn, Brazil has stretched its footprint in international finance from Washington to Shanghai.
Beyond Brazil
Brazil has made a first attempt to bring in the de-dollarization card to its South American neighbourhood, particularly together with Argentina. Last February, bilateral talks took off to begin working on a common currency project that could reduce reliance on the US Dollar. This could mean ingraining de-dollarization within the MERCOSUR area.
De-dollarization could become a part of a dynamic reconfiguration of financial and productive intersections of Brazil and its neighbours with other regions and economic powerhouses of the global economy.
Following Brazil’s example, Argentina has started to consider the use of the Renminbi in its trade with Beijing. For Brazil, these are moves that could, step-by-step, lead to a regional financial terrain with relative distance from US Dollar dominance. However, ongoing macroeconomic turbulences in Argentina, together with an extremely low level of foreign exchange reserves, will surely obstruct these plans in the short term. Besides, more than two will be needed to tango. If a sustained economic recovery of Argentina takes place, Brazil will need to assure the support of extra-regional, heavyweight, non-Western actors, particularly China and India, in investment and trade flows to trigger a renewed insertion of MERCOSUR into the world economy. De-dollarization could become a part, among others, of a dynamic reconfiguration of financial and productive intersections of Brazil and its neighbours with other regions and economic powerhouses of the global economy. Needless to say, this is a long-term strategy. The key consideration is the role of South America, that, in the near future, may play into the promotion of a multi-currency trading regime.
For now, while a strident flag of Lula’s presidential diplomacy, Brazilian ties with the US Dollar can be reduced but remain of unquestionable relevance. Decision-making in Brazil is conducted by a complex inter-ministerial web responsible for the states’ international sector that cannot avoid the influence of key production segments in the private sector. Thus, transforming the Brazilian international financial modus operandi will depend on major accommodations that cannot overlook a broad domestic negotiation process, particularly if conjoined with the strengthening of democracy.
FAQs
Is dollar losing its dominance? ›
Its decline has been and will continue to be gradual. This can be seen in two key metrics. As a percentage of foreign reserves, the U.S. dollar's market share has fallen from more than 70 per cent 25 years ago to less than 60 per cent. It remains dominant and the decline is in the context of a growing world economy.
What happens if the world stops using the dollar? ›If the world stops using the dollar as its reserve currency, it could have a significant impact on the U.S. stock market. A shift away from the dollar could lead to a decline in demand for U.S. financial assets, including stocks. This could result in a decrease in stock prices and potentially lead to a bear market.
Will the US dollar lose its reserve status? ›Losing reserve status
As much as we believe it is unlikely that the U.S. dollar will lose its position on the global economic stage, even if it were to be displaced, the implications may not be as dire as currently anticipated.
Gold, Silver, and Other Precious Metals
When there is a political or economic disaster, precious metals are traditionally considered a safe haven asset. And there is a reason for that. Precious metals can't be printed like paper money, which makes them a good hedge against economic collapse.
After reaching parity with the euro in 2022, the U.S. dollar has weakened modestly in 2023. The dollar has also lost ground against other currencies. Changes in the dollar's value on currency markets can affect results for U.S. investors who put money to work in global capital markets.
What is causing dollar weakness? ›Declining growth and corporate profits can cause investors to take their money elsewhere. Reduced investor interest in a particular country can weaken its currency. As currency speculators see or anticipate the weakening, they can bet against the currency, causing it to weaken further.
Will US currency become obsolete? ›As people move toward more electronic or digital forms of payment, it might seem like paper money is on its way toward obsolescence. But experts say that cash will always be around.
What happens to my money in the bank if the dollar collapses? ›The agency collects insurance premiums from banks so that in the event that bank becomes insolvent deposits at the financial institution are guaranteed up to a limit, at no expense to the US taxpayer. The standard deposit insurance coverage limit is $250,000 per depositor, per ownership category, per FDIC bank.
What is the strongest currency in the world? ›1. Kuwaiti dinar. Known as the strongest currency in the world, the Kuwaiti dinar or KWD was introduced in 1960 and was initially equivalent to one pound sterling. Kuwait is a small country that is nestled between Iraq and Saudi Arabia whose wealth has been driven largely by its large global exports of oil.
Will Chinese yuan replace U.S. dollar? ›But the dollar is likely to remain a top global currency, according to the economist. And the odds that China's yuan will replace the dollar are "essentially impossible," he added.
Is the US dollar backed by anything? ›
Fiat standard
Today, like the currency of most nations, the dollar is fiat money, unbacked by any physical asset. A holder of a federal reserve note has no right to demand an asset such as gold or silver from the government in exchange for a note.
After a historic bull run last year, the nominal broad dollar index fell almost 7% between November 2022 and January 2023. Such weakness reflects a mean reversion from the dollar's outsized gains in 2022. “The confluence of factors that had proved so supportive of the dollar earlier in 2022 has since inverted.
What is the biggest threat to the dollar? ›The most proximate threat to the dollar and its global status would be a U.S. default resulting from the failure to raise the debt ceiling. For America, maintaining financial independence is a matter of national security.
What will happen to silver if the dollar collapses? ›Silver's Value Could Increase
One reason is because there's a limited supply of silver, meaning as demand increases if the dollar collapses, the value of silver will actually go up, since there's not an indefinite amount of silver left.
Advantages and disadvantages of a weak dollar
A weak dollar can be a good thing for U.S. firms who want to sell goods in foreign markets. Because foreign products and services become relatively more expensive, U.S. products and services become more competitive overseas.
| Year | Dollar Value | Inflation Rate |
|---|---|---|
| 2047 | $125,395.31 | 3.22% |
| 2048 | $129,433.03 | 3.22% |
| 2049 | $133,600.78 | 3.22% |
| 2050 | $137,902.72 | 3.22% |
- Kuwaiti Dinar (KWD) ...
- Bahraini Dinar (BHD) ...
- Omani Rial (OMR) ...
- Jordanian Dinar (JOD) ...
- British Pound (GBP) ...
- (tie) Cayman Islands Dollar (KYD) ...
- (tie) Gibraltar Pound (GIP) ...
- (tie) Swiss Franc (CHF)
1. Iranian Rial (IRR) 1 INR = 516 IRR. The Iranian rial tops the list of the cheapest currencies in the world.
Who benefits from a strong dollar? ›A strong dollar makes imported goods cheaper for US consumers.
Why is it bad if the dollar is strong? ›The high U.S. dollar value bumps up the cost of interest payments for foreign entities and citizens with U.S.-based loans. And, while a stronger dollar is slowing the rate of inflation in the U.S., it is increasing the rate of inflation in much of the rest of the world. The global economy is weakening, as a result.
What is the US dollar worth right now? ›
| Actual | Previous | Lowest |
|---|---|---|
| 104.21 | 104.25 | 70.70 |
If you're carrying cash, there's no way to track where it went or who might be spending it, making it risky to carry money around. However, cashless payment methods allow you and the proper authorities to quickly track, dispute and freeze fraudulent transactions or stop them from even occurring.
What will replace money in the future? ›There are three types of digital currency: cryptocurrency, stablecoins and CBDCs. Cryptocurrency is a form of decentralized digital currency that isn't pegged to any fiat currency. It uses cryptography to manage its ledger systems, and the market determines its value. Bitcoin was the first cryptocurrency.
How long will the dollar remain strong? ›Demand for dollars to stay strong
At nearly $5 trillion, it was the second highest on record. We expect the trend to continue as companies shift production closer to major consumers in response to global trade tensions. Finally, demand for the dollar as a safe haven is likely to continue as a supportive factor in 2023.
Do no withdraw cash. Despite the recent uncertainty, experts don't recommend withdrawing cash from your account. Keeping your money in financial institutions rather than in your home is safer, especially when the amount is insured. "It's not a time to pull your money out of the bank," Silver said.
Can banks seize your money if economy fails? ›(Kitco News) - A bank can legally confiscate its clients' money in the event it needs to stay afloat, and most retail investors are not aware of this, said Lynette Zang, Chief Marketing Analyst at ITM Trading, who stressed that such legislation is already codified in the Dodd-Frank Act.
What happens to my mortgage if the economy collapses? ›Recessions and housing market crashes may cause your house's value to decrease. However, your set mortgage rates won't lower, meaning your monthly payments will be higher than your home's worth. While many may dip into their savings to help pay the steep bills, others may need outside assistance.
Which country is American money worth the most? ›Egypt. Egypt is home to historically-rich cities, deserts, and of course, pyramids. Access to the Mediterranean sea and a strong tourism sector mean that visitors can enjoy history, luxury, great food, and nature at comfortable prices. One U.S. dollar is equal to 15.75 Egyptian pounds (as of Mar.
What currency is worth the least? ›Iranian Rial (IRR)
Today 1 Indian Rupee = 516.79 IRR. Currently, Iranian Rial is considered world's least valuable currency. This is the result of factors like political unrest in the country. The Iran-Iraq war and the nuclear program also played a huge part.
- #1 – Iranian Rial (~514,000 IRR/USD)
- #2 – Vietnamese Dong (23,387 VND/USD)
- #3 – Sierra Leonean Leone (22,418 SLL/USD)
- #4 – Lao or Laotian Kip (17,274 LAK/USD)
- #5 – Indonesian Rupiah (14,946 IDR/USD)
- #6 – Uzbek Sum (11,403 UZS/USD)
- #7 – Guinean Franc (8,609 GNF/USD)
How much is $100 US in China? ›
Countries worldwide are dropping the US dollar: De-dollarization in China, Russia, Brazil, ASEAN. (Se puede leer esta nota en español aquí.) The global de-dollarization campaign is gaining momentum, as countries around the world seek alternatives to the hegemony of the US dollar.
Does China own US dollars? ›Over the past 20 years, Japan and China have owned more US Treasuries than any other foreign nation. Between 2000 and 2022, Japan grew from owning $534 billion to just over $1 trillion, while China's ownership grew from $101 billion to $855 billion.
Which country owns the US dollar? ›The United States dollar (symbol: $; code: USD; also abbreviated US$ to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official currency of the United States and several other countries.
Is Bitcoin backed by anything? ›Bitcoin is not backed by any asset. This should be intuitive because Bitcoin is not controlled by any person or organization. Therefore, nobody is in a position to make this promise, and they would not gain anything by taking on the massive liability associated with ensuring the backing.
Who controls the value of the US dollar? ›The Department of the Treasury is the lead agency setting U.S. international economic policy, including policies regarding the dollar. The value of the dollar is determined in foreign exchange markets, and neither the U.S. Treasury nor the Federal Reserve targets a level for the exchange rate.
Who is harmed by a strong USD? ›Disadvantages of a Strong Dollar
Business travelers and foreigners living in the US but holding on to foreign-denominated bank accounts, or who are paid incomes in their home currency, will be hurt and their cost of living increased.
During a high inflation period, the strong dollar also mitigates inflationary pressures through lower import prices and lower overall demand. In addition, if the value of the dollar is being driven by capital inflows, then U.S. interest rates would be higher in the absence of those capital flows.
Why is euro stronger than dollar? ›The Euro, in the long run, remains strong as it is set by policies of the European Central Bank. This body sets policies for the whole Eurozone. As it is an independent entity, it is not bound by any government. Therefore, this maintains the Euro's strength overall.
How likely is the US dollar collapse? ›It's not a likely outcome at all in most countries around the world, and that's particularly true for the United States. This is down to the U.S. dollar's status as the global reserve currency. So while technically the U.S. dollar could collapse, the chances of that happening any time soon are incredibly slim.
Will dollar lose its dominance? ›
Experts are of the view that the dollar will stay strong in 2023, and after that it may begin to lose its tint due to the possibility of a weakening US economy. Moreover, a weakening dollar could bring new risks for inflation. Therefore, a weakening dollar will pave the way for a new global currency regime.
What happens if the US dollar falls? ›A falling dollar diminishes its purchasing power internationally, and that eventually translates to the consumer level. For example, a weak dollar increases the cost to import oil, causing oil prices to rise. This means a dollar buys less gas and that pinches many consumers.
How to use gold if the dollar collapses? ›Once holders of currencies begin to lose faith in the currencies, they'll attempt to exchange the currencies for tangible goods or other items that may be in high demand. This means that, at least for a time, you may be able to exchange your gold and silver coins for dollars to purchase goods and services, as needed.
Is gold good if the dollar collapses? ›It's important to remember that gold and silver hold their value under a collapsing currency, so it's best to keep your holdings in precious metals until the need arises.
Will U.S. dollar weaken in 2023? ›The US dollar could weaken 10%-15% by the middle of 2024, Stephen Jen at Eurizon SLJ Capital wrote in a note. As inflation continues to cool, the central bank could cut rates in 2023, which would lead to the dollar's depreciation, Jen said.
What happens if dollar is replaced as world currency? ›No matter the world reserve currency, you'll still owe your mortgage, credit card, car, and college tuition. The big difference is that those dollars will now be worth mere pennies. It will be two, three, or even ten times as hard to pay for anything, including food, water, shelter, etc.
Is the US dollar losing value 2023? ›After reaching parity with the euro in 2022, the U.S. dollar has weakened modestly in 2023. The dollar has also lost ground against other currencies. Changes in the dollar's value on currency markets can affect results for U.S. investors who put money to work in global capital markets.
Is the dollar expected to get stronger? ›Algorithm-based prediction website Wallet Investor suggested the US dollar index could rise to 107.143 by the end of the year in its USD forecast for 2023. The USD forecast also saw the index closing out 2024 at an average of 113.588.
Is dollar likely to go up? ›The United States Dollar is expected to trade at 102.70 by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 107.30 in 12 months time.
Is dollar going to rise again? ›The US economic recovery is expected to continue in 2022 supporting the USD. When the cost of living, or inflation rises in the US, the USD often moves higher. Inflation rose sharply heading towards the end of 2022 which helped the US Dollar rise and is expected to rise at the start of 2022 before easing lower.
How long will the dollar stay strong? ›
Demand for dollars to stay strong
At nearly $5 trillion, it was the second highest on record. We expect the trend to continue as companies shift production closer to major consumers in response to global trade tensions. Finally, demand for the dollar as a safe haven is likely to continue as a supportive factor in 2023.
Fiat standard
Today, like the currency of most nations, the dollar is fiat money, unbacked by any physical asset. A holder of a federal reserve note has no right to demand an asset such as gold or silver from the government in exchange for a note.
But the dollar is likely to remain a top global currency, according to the economist. And the odds that China's yuan will replace the dollar are "essentially impossible," he added.
Should I buy US dollars now or wait? ›As a general rule, there's no definite time as to when you should buy US Dollars before your trip. If you're a constant international traveller, you can get the best rate if you shop around and compare options.
Will a dollar be worth more in the future? ›Inflation is the general increase in prices, which means that the value of money depreciates over time as a result of that change in the general level of prices. A dollar in the future will not be able to buy the same value of goods as it does today.
What does it look like if the US dollar is weak? ›Essentially, a weak dollar means that a U.S. dollar can be exchanged for smaller amounts of foreign currency. The effect of this is that goods priced in U.S. dollars, as well as goods produced in non-US countries, become more expensive to U.S. consumers.
Will the usd go up in 2023? ›The US dollar has eased from its peak level, but exchange rate volatility will remain elevated in 2023 on the back of global macroeconomic uncertainty. However, although the dollar is likely to decline further in 2023, it is expected that exchange rate volatility will remain elevated.