3 Reasons Countries Around The World Want To Break Up With The Dollar

Huileng Tan  Mon, July 24, 2023

A few key outside factors are chipping away at the US dollar's dominance in global trade.  The US dollar has been the world's reserve currency for decades, but its dominance is fading.  Sanctions against Russia have spurred other countries into considering backup currencies for trade.

US monetary policies, the strong USD, and structural shift in the global oil trade also contribute.  The dollar has been the world's reserve currency since World War II, but a combination of political and economic reasons is slowly chipping away at its supremacy.

Nearly 60% of international reserves are held in dollar-denominated assets, according to the International Monetary Fund. The dollar is also the most widely used currency for trade.

Now, Western-led sanctions against Russia related to its invasion of Ukraine are making other countries wary of potential consequences of crossing Washington.

Some, such as Brazil, Argentina, Bangladesh, and India, are lining up backup currencies and assets — such as the Chinese yuan and bitcoin — for trade and payments.

While the macro-geopolitical environment is spurring countries to seek alternative currencies, there's long been uneasiness over the dollar's outsized dominance in global trade and finance.

This de-dollarization talk has come back in waves every few years since at least the 1970s.

Here are three other reasons countries around the world are attempting to line up plans to possibly move away from a dollar-dominated world.

1. US monetary policy holds too much sway over the rest of the world

The US is the issuer of the world's reserve currency, which is also the dominant currency in international trade and payments systems.

Consequently, it has an outsized hold on the world economy and is often overvalued, the Wilson Center think tank reported in May.

This position has afforded the US what Valéry Giscard d'Estaing, the president of France from 1974 to 1981, called an "exorbitant privilege." One facet of this privilege is that the US might not run into a crisis if it is unable to pay its debt when the value of the dollar falls sharply because Washington could simply issue more money.

It also means that countries around the world have to tail US economic and monetary policies closely to avoid a spillover impact on their economies.

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