The search for alternatives to the dominance of the dollar gains momentum

The de-dollarization trend in international trade accelerated after the Russia-Ukraine war that broke out on February 24, 2022.

While Russia led the process to reduce the dollar’s share of trade due to US sanctions, many other countries began taking similar steps as Russia out of concern that the US is using the dollar as an economic weapon.

On the other hand, the possibility that the financial policies implemented by the United States Federal Reserve (Fed) could unleash crises similar to the debt crisis experienced in Latin America in the 1970s in developed countries also contributed to the trend away from the dollar.

China, the second largest economy in the world, strengthens the global position of the yuan thanks to the Cross-Border Interbank Payment System (CIPS), which it has developed by increasing the participation of the yuan in international trade, increasing its investments in abroad and establishing new international trade alliances.

THE DOLLAR’S SHARE OF RESERVES IS DECREASING

In the report titled “The dominance of the dollar and the rise of non-traditional reserve currencies” published by the International Monetary Fund (IMF), it was stated that the dollar’s share in the foreign exchange reserves of the world’s central banks decreased. to 59 percent by the end of 2021.

Pointing out that this level is the lowest level in the last 25 years, it was emphasized that the dollar’s share of central bank reserves decreased by 11 points after the 70 level, especially after the introduction of the euro in 1999.

In addition to the yuan, the IMF report also noted that the share of the Japanese yen, the Australian dollar and the Canadian dollar in reserves increased.

While the US share of world reserves is declining, it maintains its share of world trade significantly. 85% of global currency transactions with a volume of 6 trillion dollars per day are still carried out in dollars.

RUSSIA IS THE HEAD

Russia is among the countries leading the global de-dollarization process with its many steps in trade.

Russia, which has been trying to reduce the use of dollars for 10 years, especially in its trade with China, began to take these steps in all areas of the economy in 2022 with the sanctions of Western countries.

According to data from the Central Bank of Russia, the dollar’s share in the country’s imports and exports decreased from 51.7% to 33.9% in the third quarter of 2022 compared to the first quarter of the year. The euro’s share also fell from 35.1 percent to 18.7 percent, while the yuan’s share rose from 0.4 to 14.1 percent.

The share of national currencies, especially the ruble, in trade with the Eurasian Economic Union increased by 3.5 percentage points to 74 percent in 2022 compared to the previous year.

Russian President Vladimir Putin, in a September 2022 statement, said that the de-dollarization process in his country was inevitable and that they would continue to take steps in that direction.

ACCELERATION OF TRADE DOLLARIZATION

The trend to conduct global commodity trade, especially in Russia, in currencies other than the dollar is also gaining momentum.

Although Russia began selling its natural gas to Western countries for payment in rubles after the Ukraine war, it still receives the necessary payment for gas in rubles and yuan within the scope of the deal it made with China.

SAUDI ARABIA SURPRISE

When considering joining the BRICS countries, Saudi Arabia announced in March 2022 that it was ready to accept yuan payments for oil sales to China, a major BRICS member.

China pays in yuan for the oil it buys from Iran, which is currently under extensive sanctions. Negotiations are actively continuing between Russia and India to carry out mutual trade, mainly in oil, mainly in rubles and rupees.

Experts point out that the financial sanctions imposed by Western countries, especially the US, accelerate the process of global de-dollarization.

Russian Foreign Minister Sergey Lavrov said on January 25 that the establishment of a common currency would be discussed at the summit of the BRICS group of countries, made up of Brazil, Russia, India, China and South Africa, to be held in August.

CRITICAL STEP OF LATIN AMERICAN COUNTRIES

Another important step towards creating an alternative to the dollar in trade came from Brazil and Argentina, the two largest economies in Latin America.

The leaders of the two countries announced that they are working to carry out trade with a common currency, first between the two countries and then throughout Latin America, through the implementation of a common currency, which is planned under the name of ” South”.

With the creation of a common currency, it is intended that Argentina, which has difficulties reaching the dollar due to the economic crisis, has less difficulty paying for imports from Brazil.

Experts point out that it is a difficult process for the two countries to start using a common currency in trade, but if successful, it will ensure similar moves for other regions of the world. (AA)