The United States dollar has been the dominant global currency for decades. In the post-war period the prospect of de-dollarization has periodically re-appeared as a topic of discussion among global leaders and policy analysts. Yet, in the last few years, calls for de-dollarization and de-coupling from US markets have grown louder than ever. So, what is de-dollarization, and why is it happening?
An outstanding overview of the de-dollarization trend.
I will point out that BRICS is aware of the limits of a BRICS currency, and even the RMB. So, in anticipation of this, they have already been at work for an alternate means of money transfer between countries (especially BRICS and BRI participants) by developing an alternative to SWIFT. For the last several years, BRICS --strongly supported and fostered by China and Russia since about 2014-- are facilitating a system called Project mBridge.
As of June 2024, Project mBridge reached minimum viable product (MVP) stage, while broadening its international reach. "The project aims to explore a multi-central bank digital currency (CBDC) platform shared among participating central banks and commercial banks, built on [a block-chain based] distributed ledger technology (DLT) to enable instant [secure] cross-border payments and settlement." Countries using this system can operate with or without the US dollar. In fact, it is more likely that a "basket" of currencies will participate in cross border trade without the US dollar. This is going to expedite a dramatic decline in the US dollar hegemony. Global economist, Jeffrey Sachs, suggests less than five years. Accordingly, this will coincide with America's global decline.
[Here is the article: Project mBridge reaches minimum viable product stage and invites further international participation (bis.org)]
The USD will not be replaced by a different currency.
BRICS is moving towards multilateral currency trading, where countries use their own currencies and central bank swaps to facilitate trade. Yes, this also has limitations, but the total reliance on the USD and US bonds and bills as instruments to store USD deposits will disappear.
This will make it harder for the US to fund its massive deficit warmongering spending. t will takw some time before this will take effect, because US vassal states such as Europe, the UK and Japan will be told to suck up the bonds and bills to prevent auction failures.
De-dollarisation is looking even more critical in light of Iraels' antagonism toward Iran. If Israel attacks Iran it could well result in the total destruction of nearly all oil ( and probably gas ) infrastructure in West Asia and that will lead to the end of the US petro dollar and the collapse of the US economy.
If that happens, the global ripples wil make 2008 look like a Sunday school picnic and I imagine a lot more countries will be clamouring to join BRICS.
There is a lot of bull talked about the US dollar, you seems to have swallowed a lot of it.
"The USD has entered a period of relative decline: in 2001 70% of foreign currency reserves around the globe were held in USD, today that number is only 59%."
First 2001 was a short term peak for US reserves as % of total because of the Euro. Just previously if Germany held francs and the French held Deutschemarks (and they both held a lot) then these counted as international reserves. By 2001 these were just holdings of their own reserves, and it took a while for them to reinvest in other currencies. Same holdings of US reserves just lower total reserves.
Second US had 32% of global GDP in 2001, and 26% in 2023. A fall of one fifth, a fair bit more than its fall in reserve share.
US share of the world gets smaller (much smaller in terms of trade I guess), its twin deficits get more and more massive, yet dollar's share of reserves have held up amazingly well - we should applaud US for this.
I do believe the US is finished. I totally am with the idea that China runs the world now (not will do, but does). Militarily, Economically, Soft Power, Diplomatic Power, in all these ways the US is history.
But currency will be the last thing to fall. Roman currency was still being used in AD 1000, 500 years after the fall of the Roman empire.
What is currency? A store of value. A method of payment. A method for pricing future transactions.
The easiest thing to do is replace dollar as a method of payment. Trivial, so don't congratulate the world for that.
As a store of value we can only admire just how well the US dollar has performed in last 20 years. (One of your warnings about the dollar is actually a reminder of how strong it has been.)
Frankly the dollar remains the no 1 store of value until China starts running massive deficits and a seriously large competing market for chinese debt emerges. [if you have $10bn to place you need a currency where you can place $5bn in a day in minimum trades of $1bn each. Easy in USD, impossible anywhere else. Equally important you have to be sure you can get your money out just as quickly.]
Money for pricing future transactions. Don't kid yourself. When Russia sells oil to India or China for dates 6 months away (typical for most oil trades), the price is set in Dollars. Sure there is an agreement that on the day before delivery the price will be set in Yuan or Roubles of whatever at the then current exchange rate. Payment is non-dollar. But pricing is all dollars.
The dollar remains extraordinarily strong. De-dollarisation is just self-delusion - so much so it could almost be American.
Li Jingjing
An outstanding overview of the de-dollarization trend.
I will point out that BRICS is aware of the limits of a BRICS currency, and even the RMB. So, in anticipation of this, they have already been at work for an alternate means of money transfer between countries (especially BRICS and BRI participants) by developing an alternative to SWIFT. For the last several years, BRICS --strongly supported and fostered by China and Russia since about 2014-- are facilitating a system called Project mBridge.
As of June 2024, Project mBridge reached minimum viable product (MVP) stage, while broadening its international reach. "The project aims to explore a multi-central bank digital currency (CBDC) platform shared among participating central banks and commercial banks, built on [a block-chain based] distributed ledger technology (DLT) to enable instant [secure] cross-border payments and settlement." Countries using this system can operate with or without the US dollar. In fact, it is more likely that a "basket" of currencies will participate in cross border trade without the US dollar. This is going to expedite a dramatic decline in the US dollar hegemony. Global economist, Jeffrey Sachs, suggests less than five years. Accordingly, this will coincide with America's global decline.
[Here is the article: Project mBridge reaches minimum viable product stage and invites further international participation (bis.org)]
All Best
Werner
The USD will not be replaced by a different currency.
BRICS is moving towards multilateral currency trading, where countries use their own currencies and central bank swaps to facilitate trade. Yes, this also has limitations, but the total reliance on the USD and US bonds and bills as instruments to store USD deposits will disappear.
This will make it harder for the US to fund its massive deficit warmongering spending. t will takw some time before this will take effect, because US vassal states such as Europe, the UK and Japan will be told to suck up the bonds and bills to prevent auction failures.
De-dollarisation is looking even more critical in light of Iraels' antagonism toward Iran. If Israel attacks Iran it could well result in the total destruction of nearly all oil ( and probably gas ) infrastructure in West Asia and that will lead to the end of the US petro dollar and the collapse of the US economy.
If that happens, the global ripples wil make 2008 look like a Sunday school picnic and I imagine a lot more countries will be clamouring to join BRICS.
There is a lot of bull talked about the US dollar, you seems to have swallowed a lot of it.
"The USD has entered a period of relative decline: in 2001 70% of foreign currency reserves around the globe were held in USD, today that number is only 59%."
First 2001 was a short term peak for US reserves as % of total because of the Euro. Just previously if Germany held francs and the French held Deutschemarks (and they both held a lot) then these counted as international reserves. By 2001 these were just holdings of their own reserves, and it took a while for them to reinvest in other currencies. Same holdings of US reserves just lower total reserves.
Second US had 32% of global GDP in 2001, and 26% in 2023. A fall of one fifth, a fair bit more than its fall in reserve share.
US share of the world gets smaller (much smaller in terms of trade I guess), its twin deficits get more and more massive, yet dollar's share of reserves have held up amazingly well - we should applaud US for this.
I do believe the US is finished. I totally am with the idea that China runs the world now (not will do, but does). Militarily, Economically, Soft Power, Diplomatic Power, in all these ways the US is history.
But currency will be the last thing to fall. Roman currency was still being used in AD 1000, 500 years after the fall of the Roman empire.
What is currency? A store of value. A method of payment. A method for pricing future transactions.
The easiest thing to do is replace dollar as a method of payment. Trivial, so don't congratulate the world for that.
As a store of value we can only admire just how well the US dollar has performed in last 20 years. (One of your warnings about the dollar is actually a reminder of how strong it has been.)
Frankly the dollar remains the no 1 store of value until China starts running massive deficits and a seriously large competing market for chinese debt emerges. [if you have $10bn to place you need a currency where you can place $5bn in a day in minimum trades of $1bn each. Easy in USD, impossible anywhere else. Equally important you have to be sure you can get your money out just as quickly.]
Money for pricing future transactions. Don't kid yourself. When Russia sells oil to India or China for dates 6 months away (typical for most oil trades), the price is set in Dollars. Sure there is an agreement that on the day before delivery the price will be set in Yuan or Roubles of whatever at the then current exchange rate. Payment is non-dollar. But pricing is all dollars.
The dollar remains extraordinarily strong. De-dollarisation is just self-delusion - so much so it could almost be American.