I’ve written about Dedollarisation a few times in the past. A lot of people thought it nonsense and imagined the US dollar couldn’t be reduced in influence.
I wrote this article in 2015: Two for the Price of One: De-dollarise and Reduce American Hegemony. I correctly predicted that the US would have to be carefully handled during dedollarisation and it would go down kicking, screaming and lashing out and quite likely start a war while it was doing so. I was correct in that and the conflict the US ignited in Ukraine is testimony to that.
In actual fact, the conflict in Ukraine has caused Russia, China and others to speed up the process of dedollarisation as the geopolitical analyst Andrew Wilson explains in this article: Dedollarisation and Reducing Dollar Hegemony Following the Russian Military Operation in Ukraine.
Today, I thought we’d take a canter through the facts about dedollarisation, what it means, how it is implemented, by whom, and what effects that will have on the US.
Why do countries want to dedollarise?
There are several reasons why the world is dedollarising, or moving away from using the US dollar as the primary reserve currency and the currency of international trade.
- Geopolitical tensions: The use of the US dollar as the dominant reserve currency is seen by some countries as a way for the US to exert undue influence on global financial markets and the global economy. As a result, countries such as China and Russia are actively seeking to reduce their reliance on the US dollar and promote the use of other currencies, such as their own.
- The rise of alternative currencies: The growth of alternative currencies, such as the euro and the Chinese yuan, has also contributed to the dedollarisation trend. These currencies are increasingly being used in international trade, particularly in regions such as Asia and Europe.
- The US dollar’s declining value: The value of the US dollar has declined in recent years, particularly in relation to other major currencies such as the euro and the Japanese yen. This has undermined confidence in the US dollar as a reliable store of value, leading many countries to consider alternative currencies for their reserves.
- US economic policies: The economic policies of the US government, particularly its use of sanctions and tariffs, have also contributed to the dedollarisation trend. These policies have made it more difficult for other countries to do business with the US and have encouraged other countries to seek alternative trading partners and currencies.
Dedollarisation is a complex phenomenon that is driven by a range of economic, political, and geopolitical factors. While it is unlikely that the US dollar will lose its status as the dominant reserve currency in the immediate future, the trend towards dedollarisation is likely to continue, particularly as other currencies become more widely accepted as a means of international trade and investment.
Russian sanctions and dedollarisation
Let’s talk about US sanctions on Russia and how that causes retaliation in the form of countersanctions and dedollarisation.
Russian counter-sanctions can potentially damage the US dollar in several ways. When the US imposes sanctions on a country, it restricts that country’s access to the US financial system, which can cause the affected country to look for alternative ways to transact globally. In response to US sanctions, Russia has imposed its own counter-sanctions, including restrictions on imports from the US and the EU, and reducing its reliance on the US dollar in international trade.
Here are some ways in which Russian counter-sanctions can damage the US dollar:
- Reducing demand for the US dollar: By reducing their reliance on the US dollar in international trade, Russia and other countries affected by US sanctions can reduce the global demand for the US dollar, potentially weakening its value.
- Encouraging the use of alternative currencies: By moving away from the US dollar, Russia and other countries can encourage the use of alternative currencies, such as the euro or the Chinese yuan, which can reduce the dominance of the US dollar in global trade.
- Creating instability in the US financial system: As countries move away from the US financial system, it can create instability in the US economy, potentially leading to a weakening of the US dollar.
Russian counter-sanctions can damage the US dollar by reducing demand for it, encouraging the use of alternative currencies, and creating instability in the US financial system. However, the extent of the damage will depend on the specific measures taken by Russia and the response of the global financial system.
Can Russia benefit from dedollarisation?
Dedollarisation is the process of reducing or eliminating the use of the US dollar in international trade and financial transactions. Russia has been pursuing dedollarisation as a strategy to reduce its dependence on the US dollar and to increase its economic sovereignty.
There are several ways in which dedollarisation can benefit Russia:
- Reduced exposure to US sanctions: The US has used its position as the dominant currency in international trade to impose economic sanctions on countries like Russia that it sees as adversaries. By reducing its dependence on the US dollar, Russia can reduce its vulnerability to these sanctions.
- Increased economic sovereignty: By using its own currency, the ruble, in international trade, Russia can increase its economic sovereignty and reduce its reliance on the global financial system, which is dominated by the US and Western powers.
- Boost to domestic industry: Dedollarisation can also benefit Russian businesses by reducing their transaction costs and increasing their competitiveness in international markets.
- Strengthening of regional alliances: Dedollarisation can also strengthen regional alliances between countries that are seeking to reduce their dependence on the US dollar, such as the BRICS countries (Brazil, Russia, India, China, and South Africa).
Dedollarisation can help Russia to reduce its dependence on the US and increase its economic sovereignty, which could have significant long-term benefits for the country.
Since the US destroyed the Nord Stream pipeline, the economic gloves are off for Russia. Dedollarisation in all its forms is a high priority in what is the largest country in the world.
How does dedollarisation damage the US economy?
Dedollarisation will damage the US economy by increasing inflation. As the US dollar is currently the dominant currency in international trade, many countries, including some of the largest economies in the world, hold large amounts of US dollar reserves. These countries use these reserves to buy goods and services from other countries, including the US.
If countries start to reduce their holdings of US dollars and switch to other currencies, such as the euro, yen, or yuan, the demand for the US dollar will decrease. This could lead to a decrease in the value of the US dollar and increase the cost of imported goods for US consumers, leading to inflation.
Furthermore, if countries stop using the US dollar as the dominant currency for international trade, the US could lose its dominant position in the global financial system. This could lead to a decrease in demand for US Treasury bonds, which are used to finance the US government’s debt. If demand for US Treasury bonds decreases, the US government may have to offer higher interest rates to attract buyers, which would increase the cost of borrowing and lead to inflation.
Dedollarisation will damage the US economy by leading to a decrease in demand for the US dollar and US Treasury bonds, which could increase inflation and the cost of borrowing for the US government. However, it is important to note that the impact of dedollarisation on the US economy would depend on the scale and pace of the shift away from the US dollar, as well as the actions taken by the US government and Federal Reserve to respond to these changes.
Dedollarisation is real and it’s happening right now. Even Fox Business and other US media channels are starting to talk about it. People in the know have been talking about it for years.
It is in the interests of many countries to dedollarise and by so doing, clip the wings of the US. Hopefully, it will reduce US aggression, regime changes and wars around the world. And having hyperinflation at home might just stop the US meddling further in Russia and China’s interests.