WHAT IS THE IMPACT OF DE-DOLLARIZATION ON THE GLOBAL ECONOMY?
WHAT IS DE-DOLLARISATION?
De-dollarization is a term that is
given to the situation wherein countries across the globe start reducing the
dominance of the US dollar as their only option for international trading, mode
of exchange, and as a universal unit.
Many years back during the times of
World War-1, the sterling pound was the mode of currency that was used across
the globe as a standard unit of measurement. As the war came to an end, the US
dollar started displacing the sterling pound and gradually became the primary
mode of currency. Since then, till now, the US dollar has been the widely used
primary mode of currency, which is now losing its value as other countries are
trying to go for other alternatives.
WHY ARE COUNTRIES SHIFTING THEIR MODE
OF CURRENCY FROM US DOLLAR?
At first, using the standard mode of
currency under the Bretton Woods Agreement as US Dollar was benefiting other
countries as the value of the USD was far better than stocks or gold. By the
year 1970, this agreement was dissolved and hence, Asian countries started to
upscale themselves which led to a huge negative trade balance in the United
States. On this, the then-president of the US delinked USD from convertibility
of USD to gold or any assets.
Due to this amendment, all global
transactions were done in US dollars by nearly every underdeveloped and
developing nation. This gave an excellent push to the US Trade Data and
the value of the USD.
In the year 2014, the United States
applied some major economic restrictions on Russia which created hurdles to
trade in the USD. With this, the countries started finding alternative currency
options for trading to reduce the monopoly of the USD as much as possible.
Countries started shifting to currencies like the Euro, Pound, Ruble, Chinese
Yuan, UAE Dirham, etc. which has declined the dominance of the USD in the
market by almost 35% to date.
This decline has also impacted the US
Trade Data negatively and the global circulation of the USD has been reduced by
several folds. Russia is completely using Ruble as its primary currency for
trading its crude oil and Russia as per Russia Trade Data of
recent times.
One of the oldest journalists in the
United States, Fareed Zakaria has said that the two big nations, namely China
and Russia have teamed up and are deteriorating the value of the United States
Dollar. He points out the claims and orders that are given to Russia and how
they are promoting other nations to go for alternate currency resources.
ADVANTAGES FOR COUNTRIES TO GO FOR
ALTERNATE CURRENCY OPTIONS
There are multiple advantages that
are reaped by using alternate currency options by the countries to conduct
their foreign exchange. Some of the prominent advantages are:
· The dependence of countries on the USD has declined as now
they have alternative options. This is the major benefit for those countries
which are under the restrictions and sanctions of the United States.
·
By using multiple currency options, transaction costs, and
multiple risks are reduced.
· By using different currencies, a sense of integrity is
developed amongst those countries that are using common currencies.
DISADVANTAGES OF USING ALTERNATIVE
CURRENCY OPTIONS
There are some disadvantages attached
to the de-dollarization process going on currently. Some of the drawbacks of using different
currency options are:
·
The first and foremost drawback is that there arise
transition hurdles at various ports and countries if that chosen currency is
not applicable or used at that port.
· There are chances of short-term instability of other
currencies as they are not widely accepted.
·
CONCLUSION
In conclusion, we would like to state
that the reliability of the United States Dollar is reducing by every passing
year. The main causes behind this decline are the coming up of China, sanctions
and restrictions on Russia, the shifting of countries to other currency
alternatives, and concerns about the reliability of the USD. This decline is
linear in nature and will continue in the upcoming years.
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Source Url: https://medium.com/@tradeimex11/what-is-the-impact-of-de-dollarization-on-the-global-economy-eabe6969e4aa
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