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Is the de-dollarization of the world economy on its way? Several facts suggest so

The issue of the de-dollarization of the world economy has been raised repeatedly for several years, but only in the last few days has there been significant movement in that direction.
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A large number of countries have decided or suggested using currencies other than the dollar for their commercial transactions. There is a significant increase in gold purchases and a greater weight of currencies such as the yuan in international trade. Statements and actions by countries in Latin America, Asia and Africa reveal this trend.

Several events in recent years, especially since 2008, show an increasing loss of importance of the dollar, mainly in terms of the de-dollarization of the world economy.

The following are the main moments and actors of this process at important times.

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Towards the de-dollarization of world trade

When several Latin American governments created UNASUR at the beginning of the century, there was insistent talk of the creation of a common currency that came to be called Sucre, but it never materialized.

In 2017, there was discussion on the world stage of the petroyuan, with the proposal that Saudi Arabia would receive yuan as payment for its oil exports to China, breaking the agreement that the Arab kingdom had made with the United States to sell all its oil in dollars and which was the basis for the dominance of the dollar in the world economy. This agreement was finally finalized in 2023 and signaled a major distancing of the Arab monarchy from the United States.

In 2018, the United States imposed a set of sanctions on China, which led the Asian power to create an alternative mechanism for its economic transactions, called CIPS, as a means to conduct transactions, circumventing the U.S.-run Swift system.

Almost simultaneously, the United States applied harsh sanctions on Russia in 2014 for its annexation of Crimea. These deepened in the wake of the war in Ukraine, including Russia’s exclusion from the Swift mechanism, in response to which it developed its own mechanism, called PESA, for interbank transactions.

In April 2023, according to the International Monetary Fund (IMF), the dollar accounted for 54% of world reserves, while the yuan had only 2.5% of those same reserves and the euro about 19%.

A slow but steady trend against the dollar

China’s importance in international trade is growing, as already in 2021 that country’s international trade accounted for USD $6.064 trillion, almost 30% more than that of the United States, which was USD $4.691 trillion.

This gap has widened with the U.S. trade deficit with China and the fact that China has become the main trading partner of almost every country in the world. In 2022 alone, Chinese transactions in yuan exceeded those in dollars, and according to Bloomberg, the U.S. dollar’s share of China’s international trade fell to 47% from 48.6% in February.

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The war in Ukraine and the de-dollarization of the world economy

In the wake of the U.S. sanctions imposed on Russia for its intervention in Ukraine, which caused the Russian Federation millions of dollars in losses, a wave of countries proposing the de-dollarization of the world economy has spread, starting with abandoning or diminishing the role of the dollar in trade exchanges.

Russia has stepped up its de-dollarization efforts in the past year, with Putin signing an executive order in March 2022 prohibiting “unfriendly” countries from signing natural gas contracts in any currency other than the ruble.

In recent months, this trend towards de-dollarization has been accentuated. In January 2023, Brazil and Argentina announced the start of preparations to trade in their own currencies.

On February 21, Iraq approved the use of yuan for its trade with China in yuan. In March, France sold 65,000 tons of liquefied gas to China in yuan and in the same month Brazil made an agreement with China to trade in yuan.

One of the factors that has determined the weakening of the dollar was the so-called quantitative easing, which since 2008 led to the issuance of millions of dollars in what was called helicopter money.

This issuance did not correspond to an increase in production and, in the last 15 years, represented a 40% increase in dollars in circulation, which has been a determining factor in the recent runaway inflation.

New options emerge

The dollar no longer has exclusivity in international trade. This trend may accelerate with the proposal of the BRICS (Brazil, India, China, India and South Africa) to launch their own currency that would compete with the dollar.

The fact that Algeria, Saudi Arabia, Argentina, Egypt and Belarus, among other countries, have announced their desire to join this organization may aggravate the situation for the United States. South Africa speaks of 18 applications and others of up to 30. Joining the BRICS or the new Development Bank implies a radicalization of the trend towards the de-dollarization of the world economy.

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