De-dollarisation - a threat to the US

De-dollarisation refers to countries reducing reliance and replacement of the U.S. dollar by other currencies as the global reserve currency. The global de-dollarization campaign is gaining momentum, as countries around the world seek alternatives to the hegemony of the US dollar. De-dollarization can have both positive and negative impacts on the United States.

China, Russia, Brazil, India, ASEAN nations, Kenya, Saudi Arabia, and the UAE are now using local currencies in trade. On the positive side, de-dollarization can increase financial stability by reducing the dependence of other countries on the U.S. dollar, which can make them less vulnerable to fluctuations in the U.S. economy. Additionally, de-dollarization can encourage countries to diversify their reserve currencies, which can lead to a more stable international monetary system.

On the negative side, de-dollarization can reduce the demand for U.S. dollars, which can lead to a decline in the value of the dollar and increase the cost of borrowing for the United States. Additionally, if other currencies such as the euro or the Chinese yuan gain in popularity as an alternative to the dollar, it could erode the U.S. role as the dominant global economic power and diminish its ability to influence international economic policies.

The alternative payment system was put in place to carry on with bilateral trade while avoiding the purview of Western sanctions on Russia which were imposed for its invasion of Ukraine.

When we see the trend, China and Russia are trading in their own currencies. Beijing and Brazil have also dropped the dollar in bilateral trade. Today, Two-thirds of trade between China and Russia is already conducted in rubbles and yuan. Secondly, The UAE is selling China its gas in yuan, through a French company. Southeast Asian nations in ASEAN are de-dollarizing their trade, promoting local payment systems.

At the same time, Rupee-Rubble mechanism for trade between India and Russia has been established. The Vostro accounts have been opened and these Vostro accounts are used to make payments in domestic currency, which in India’s case is the Rupee.

Overall, while de-dollarization can have negative implications for the United States, it is not necessarily a direct threat to its economy or national security. The impact of de-dollarization will depend on how quickly and to what extent other countries adopt alternative currencies, and how effectively the U.S. adapts to the changing international financial landscape.

Dr. Deepak Kumar Sahu, President & CEO, VARINDIA