[ad_1]
The dedollarisation trend has continued to gain momentum with more countries shifting away from the US dollar in their international transactions. In this article, we will explore some of the most recent and notable events related to dedollarisation, including the growing adoption of alternative payment systems and the increasing use of local currencies in bilateral trade agreements. We will also discuss the potential implications of these developments for the global financial system.
►In the aftermath of World War II, 44 Allied countries met at the Breton Woods Agreement to create a new system of rules that would shape the global economy. This led to the creation of the International Monetary Fund (IMF) and the World Bank, as well as a new exchange rate system where each country pegged the value of its currency to the US Dollar. This gave the Dollar immense power to dominate the global economy, creating two financial institutions largely controlled by America that remain powerful today. Despite many calls for dedollarisation in last one decade, the US Dollar is still widely used both inside and outside the US.
■ About 1 Trillion notes are in circulation outside America.
■ Some 40% of the world debt is issued in US Dollars.
■ Nearly 60% of the global currency reserves are in US Dollars.
■ Close to 90% of all foreign exchange trade involves the US Dollar.
The world economy’s reliance on the US dollar has begun to decline but the process is expected to be gradual. While the dollar’s downfall has begun, its long-term impact remains uncertain. Nonetheless, the dollar’s position of power in the global economy is no longer as secure as it once was.
The idea of moving away from the US dollar has been around for several years, but gained momentum following the conflict between Russia and Ukraine that began in February 2022. In the aftermath of the invasion, a series of events unfolded aimed at imposing sanctions on Russia, including its removal from the SWIFT system.
■ On 24 February 2022, the Ukrainian Minister of Foreign Affairs urged for Russia’s exclusion from SWIFT in response to the ongoing invasion. Subsequently, several other countries such as France, Germany, Italy, Cyprus, and Hungary also supported the ban.
■ On 1 March 2022, The European Union, United Kingdom, Canada, and the United States finally agreed to remove seven Russian banks from the SWIFT messaging system.
■ On 31 May 2022, The EU removed Russia’s largest bank, Sberbank from SWIFT as part of the 6th package of sanctions.
■ The imposition of SWIFT sanctions had a significant impact on Russia’s economy, with the country defaulting on a portion of its foreign currency-denominated debt on June 27th, 2022, after it missed a payment deadline, according to the Moody’s rating agency.
After being impacted by sanctions, the Russian finance minister, Anton Siluanov addressed the BRICS member nations in April 2022 and said “This pushes us to the need to speed up work in the following areas: the use of national currencies for export-import operations, the integration of payment systems and cards, our own financial messaging system and the creation of an independent BRICS rating agency,”
Following this incident, the momentum towards dedollarisation increased, and China took some assertive steps to promote the use of its currency, the yuan, in various sectors of international trade with several nations.
A Russian top official, Alexander Babakov, speaking at the St. Petersburg International Economic Forum on March 30, 2023, stated that “New Delhi, Beijing, and Moscow are the countries currently leading the charge towards a multipolar world that is supported by most governments. They propose to create new monetary ties that do not rely on the US dollar or euro, but instead develop a new currency that serves our mutual interests.” Additionally, Babakov stated that the proposed new currency would be utilized for trade transactions among BRICS nations. The group of these 5 countries account for about 23% of the world’s total trade.
► The following are some significant events that occurred during the first quarter of 2023:
■ India and China have made announcements to conduct trade using their respective currencies, thereby moving away from the use of the US dollar.
■ China and France have also completed their first LNG trade settled in yuan in March 2023.
■ Brazil and China have also agreed to bypass the US Dollar for bilateral trades.
■ Kenya signed a deal with Saudi Arabia and UAE to buy oil using Kenyan shillings instead of US dollars.
■ Currently, the Chinese Yuan has replaced the US dollar as the most traded currency in Russia.
In Conclusion, The dedollarisation trend continues to gain momentum with more countries shifting away from the US dollar in their international transactions. The reliance on the US dollar in the global economy is declining, but its long-term impact remains uncertain. Recent events, such as the conflict between Russia and Ukraine and the imposition of SWIFT sanctions, have further fueled the push for dedollarisation. China has taken assertive steps to promote the use of its currency, and several countries have made announcements to conduct trade using their respective currencies instead of the US dollar. These developments have potential implications for the global financial system, and it remains to be seen how they will shape the future of international trade and finance. The winds of change are blowing, and the global financial system will need to adapt to this new reality.
New to trading? Try crypto trading bots or copy trading on best crypto exchanges
[ad_2]
Source link