The end of US Dollar dominance, should we wake up to the call?

In recent years, there have been growing concerns about the stability of the US dollar as the world’s reserve currency. The rising power of the BRICS countries (Brazil, Russia, India, China, and South Africa) and their currencies has been a major factor contributing to this concern. In 2023, the US dollar could potentially face a collapse as a result of the increasing use of BRICS currencies in global trade.

The BRICS countries have been making strides to increase their global economic influence, and their currencies have been gradually gaining traction in international trade. For example, China has been working to promote the use of its currency, the yuan, in international transactions. In recent years, it has established currency swap agreements with a number of countries, allowing them to bypass the US dollar in their trade transactions.

In addition, the Russian government has been pushing for a new international currency standard to be created, which would provide an alternative to the US dollar. The proposed currency standard would be based on a basket of currencies, including the yuan, the ruble, and the Indian rupee. This move would provide an alternative to the US dollar as a reserve currency and would potentially lead to a decrease in demand for US dollars.

If the BRICS currencies continue to gain traction in global trade, this could lead to a significant decrease in demand for the US dollar, which could ultimately cause the currency to collapse. This would have major implications for the global economy, as the US dollar is currently the world’s reserve currency and is used in a large percentage of international transactions.

The collapse of the US dollar could also lead to significant inflation in the United States, as the value of the currency would decrease rapidly. This would lead to higher prices for goods and services, which would have a major impact on the standard of living for Americans.

In order to prevent the collapse of the US dollar, the United States government would need to take steps to maintain the currency’s stability. This could include increasing interest rates, reducing the national debt, and promoting US exports to increase demand for the currency.

In conclusion, the increasing use of BRICS currencies in global trade could potentially lead to the collapse of the US dollar in 2023.

The US dollar’s position as the primary global reserve currency is being challenged as countries become eager to insulate themselves from Washington’s influence.

For decades, the dollar has dominated the global monetary system. Currently, about 60 percent of foreign exchange reserves held by central banks are in US dollars, and nearly 90 percent of all currency transactions involve the use of the dollar.

However, the dollar’s reserve status began to decline in 2014 when some major global powers began to de-dollarize their business dealings. The War in Ukraine, and the subsequent sanctions that it inspired have accelerated the de-dollarization process. For one, Chinese authorities were surprised by the seizure of the Russian central bank’s foreign exchange reserves following the Ukraine invasion. In the event of a conflict between the US and China, Chinese assets could also be at risk.

Recent de-dollarization events include:

During a press briefing at the Davos forum in January, Saudi Arabia's Finance Minister Mohammed Al-Jadaan surprised journalists by stating that the oil-rich nation was willing to consider trading in currencies other than the US dollar for the first time in 48 years.
Last week, Chinese and French energy companies completed the first-ever deal on liquefied natural gas (LNG) in China using the renminbi yuan currency. The trade involved the import of 65,000 tons of LNG from the United Arab Emirates and represents a significant milestone in Beijing's efforts to challenge the US dollar's position as the universal "petrodollar" for gas and oil trade.
Brazil has also recently announced an agreement with China to trade directly in their own currencies, bypassing the US dollar as an intermediary.
India is also making efforts to reduce the US dollar's dominance in international trade by launching separate programs to settle transactions in their own currencies. The Reserve Bank of India recently allowed central banks from 18 countries to open special Vostro Rupee Accounts (SVRAs) to settle payments in Indian rupees.

Overall, the US dollar’s share of the global market has decreased from 71 percent to 59 percent over the last two decades and could shrink even further in the future. The primary victim in this scenario is the United States, as currency usage in global trade is a zero-sum game. Each time a yuan, real, or rupee is exchanged on the global market, a dollar is not. If credible alternatives gain steam, the dominance of America in the global market will be compromised.

Today, the world’s central banks fell below 59% of their foreign exchange reserves in dollars in the final quarter of last year – a decline from 70% in 2000 – depicting the simmering trend towards de-dollarization. During the same period, the euro has registered only a modest increase in its share of global reserves, rising from 18% to just under 20% today. In contrast, the Chinese renminbi (RMB/yuan), despite accounting for less than 3% of the world’s reserve currency holdings, has been showing very rapid growth since 2016.

The case with Pakistan and many other countries who are being excessively burdened because their currencies are pegged with the US dollars. As nations grapple with the impact of sanctions, shifting trade patterns, and volatile currency markets, the move towards de-dollarisation represents a critical response to these challenges, offering a way to safeguard against the uncertainties of the global economy and chart a course towards greater stability and prosperity

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