Many countries have expressed concerns over the US’s domination of the global financial system and its potential to use the dollar as a weapon against them. As a result, various parties have been exploring alternatives to the dollar.
According to a report by Oilprice, since 1967, many countries have started diversifying their reserves away from the dollar and reducing their reliance on the US financial system.
Following World War I, the US surpassed the UK as the world’s leading financial power. Consequently, the dollar began replacing the pound sterling as an international reserve currency, and the US became an important recipient of gold flows during the war.
Many countries have expressed concerns over the US’s domination of the global financial system.
The report confirmed that in 1944, the dollar’s role increased when 44 countries signed the Bretton Woods Agreement, which led to the creation of a collective international currency exchange system linked to the US dollar and tied to the price of gold.
By the late 1960s, the competitiveness of European and Japanese exports had increased, and there was a large supply of dollars worldwide, making it challenging to support the dollar with gold.
In 1971, President Nixon issued an executive order prohibiting the direct conversion of the US dollar to gold, effectively ending the gold standard’s maximum limit on the amount of currency that could be printed.
Discussions on de-dollarization are taking place in other parts of the world.
The report indicated that several countries’ concerns over America’s dominance of the global financial system and its potential use as a weapon had led them to explore other alternatives to decrease the dollar’s dominance.
While the US and other Western nations imposed economic sanctions on Russia for its war in Ukraine, Moscow and the Chinese government worked together to reduce their reliance on the dollar and establish cooperation between their financial systems.
The author mentioned that trade between the ruble and yuan has increased 80-fold since the war in 2022, and Russia and Iran are also collaborating to launch a gold-backed cryptocurrency.
Additionally, central banks, particularly those in Russia and China, have increased their pace of gold purchases, as they did in 1967, as countries look to diversify their reserves away from the dollar.
Despite everything, many believe the dollar’s global dominance will not end anytime soon.
The report stated that discussions on de-dollarization are taking place in other parts of the world. Brazil and Argentina recently discussed creating a common currency for South America’s two largest economies.
Many former Southeast Asian officials spoke about efforts to end the dollar’s dominance at a conference in Singapore last January. The UAE and India are discussing the use of the rupee to trade non-oil commodities instead of the dollar.
Despite these movements, the report concluded that many believe the dollar’s global dominance will not end anytime soon.
Currently, central banks hold approximately 60% of their foreign currency reserves in dollars.
