A new wave of de-dollarisation is sweeping the world through many nations. The campaign is avoiding the use of dollar in bilateral and trade transactions and increasing the adoption of national currencies for trade payments.
The pace of dollar avoidance is gathering momentum in many countries of Asia, Europe and Latin America. They are trying to untangle their dependence on the greenback so as to insulate themselves from economic shocks including falling currency, high inflation and debt burden.
According to currency expert Barry Eichengreen,
“The U.S. dollar is losing its eminence. In the next 10 years, he says, the grip of the dollar on the world economy will loosen substantially”.
He sees a replay of sterling losing to dollar in the 20th century. Barry is confident that the most eligible currency to displace dollar will be China’s yuan, which is an underdog now.
What other fiat currency you think will replace U.S. Dollar? Let me know your views in comments.
Why De-Dollarisation Is Gathering Pace?
Rising tensions in the international trade front over tariffs and protectionism in many countries are forcing countries to stabilize their domestic currencies by reducing the dependence on the dollar by avoiding its use.
Nation states are aware that the undue hold of the American dollar is making them powerless in exercising control over the macroeconomic processes.
The unbridled flow of dollars is distorting many economies, sullying stock markets and national debts are making countries poorer.
- Russia in the frontline
Leading the de-dollarisation campaign from the frontline has been Russia with support from China, Iran and economies in Latin America. Read more.
Russia’s economy run on oil revenues is hit by the US-led sanctions. President Vladimir Putin is convinced that the global monopoly of the dollar is hurting the economy and salvation lies in de-dollarisaton to detach from US sanctions and other external pressures.
Russia is trying to make payments in non-dollar currencies for bilateral trade and has been transferring dollar holdings to the Russian jurisdiction. Russia has already offloaded more than $80 billion in US securities.
- China’s Agenda
China is avoiding US dollar based transactions in bilateral trade. It has done so with Iran and agreements were signed with Canada and Qatar to that effect.
Beijing’s de-dollarisation agenda has a parallel track in promoting own currency yuan as the alternative to the dollar in international trade and investment.
Unlike Russia, Beijing is not showing haste in dumping its $1.17 trillion holdings of US securities. China is taking calculated steps to promote yuan as a global currency. The Special Drawing Rights achieved by Yuan in 2016 is a case in point.
- Europe Miffed with Dollar
In Europe too, bickerings against the dollar are getting loud. German Foreign Minister Heiko Maas recently made a call for ditching SWIFT, the international payment system to wriggle out of the US dominance and called for launching a new payments system.
President of the European Commission Jean-Claude Juncker also advocated the increased promotion of the euro. He is miffed with the “absurd” situation where the European Union paying 80 percent of its energy needs in dollars while the US supplying only 2% of raw materials for Europe.
Recently the European Central Bank converted 500 million euro worth US dollar reserves to Yuan securities indicating a strain in the economic ties between the transatlantic allies and a faith in Yuan.
- New Trade Provocations by US
Among the latest triggers, Washington’s decision to remove Iran from the SWIFT payment system, sanctions against Russia and Venezuela, trade war with China have accentuated the search for a new financial system that will not be stifled by the dollar run by the United States.
Is Cryptocurrency an Alternative?
In this context, the rise of cryptocurrency is pertinent. It is not to be seen as an accidental development. Many analysts say rise of cryptocurrency as an offshoot of the Internet, smartphones or maturing of the digital world are sheer understatements.
But in reality the bad consequences brought by mighty dollar and fiat currencies are helping cryptocurrencies to fortify their presence.
Why cryptocurrencies? the answer is easy:
- Cryptocurrency is a safer alternative to resist the assault of centralized economic systems, financial regulators and banks.
- Blockchain technology, the soul of cryptocurrencies created a new model of decentralized economic transactions with no place for manipulative intermediaries.
- Cryptocurrencies are the new antidote to debt virus that is destroying the wealth of countries hooked to a dollar regime.
The current financial system controlled by the American dollar is thriving because of the anonymity and centralization of systems. For critics, the biggest vulnerability of crypto currencies is high volatility.
Venezuela’s Cryptocurrency El Petro in Action: A working model
The oil exporting country found a remedy in the cryptocurrency El Petro to escape the prolonged and painful economic crisis that brought inflation to a whopping 13,000% in 2018, according to the International Monetary Fund.
“El Petro marks a beginning and many countries may emulate such practices if they feel confident on the experiment that gives results and render economic justice to the citizens.”
Three factors are going to help El Petro to stand on its feet.
- Scope as a Means of exchange: El Petro can help in buying goods and services. It is fit used for paying taxes and availing public services. Digital exchange houses are ready to facilitate trading El Petro for fiat currency for paying oil price.
- Digital Platform: El Petro as a digital platform can trade crypto assets and is supported by state’s raw minerals reserve.
- Savings and investment: El Petro is tradable at electronic exchanges without any trading fees. Atomic Swap technology makes trading legitimate.
Whatever the case, de-dollarization in its peak will have many substitutes to take the place of dollar. But the power of decentralization achieved by blockchain led cryptocurrencies will stay in the reckoning with less volatility brought in.
What you all think about cryptocurrencies as alternatives for fiat? Which cryptocurrencies or fiat currencies will be in power in next 5years? Let me your views in comments.
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