In a multipolar world, the US dollar’s fall from prominence looks likely

In recent years, the world has witnessed fierce US-China rivalry, the Covid-19 pandemic wreaking havoc on global systems and the fallout from the Ukraine war on supply chains, as well as an acceleration towards multipolarity, where power is more evenly distributed among several advanced economies. The transformation of China, a trusted economic partner to many countries, into a mediator of global importance is just one example of the move away from a unipolar world. This is coupled with de-dollarisation gaining momentum. More countries are voicing concern about the US dollar’s dominance of the global financial system and its use as a tool for exerting influence. A World Gold Council survey revealed that many central banks, particularly those in developing and emerging markets, are seeking to boost their gold reserves. According to the International Monetary Fund, the share of the dollar in the world’s official foreign exchange reserves has fallen from 71 per cent in 1999 to 58 per cent at the end of last year. In June last year, Russian President Vladimir Putin said the BRICS grouping – Brazil, Russia, India, China and South Africa – is collaborating on creating its own currency. Brazilian President Luiz Inacio Lula da Silva expressed support for the idea. Meanwhile, China is developing its interbank payment system as an alternative to the Western-controlled Swift system. The United States’ fractious ties with many nations have inadvertently bolstered China’s global prominence. In March 2020, eight countries issued a joint letter to the secretary general of the United Nations calling for an end to sanctions. The gulf between the Western powers and their allies – led by the US, European Union and Japan – and the Eastern powers led by China and Russia has widened due to sanctions related to the Ukraine war. The exclusion of Russia from the Swift financial messaging system led to a rise in the country’s interest rates, an imposition of capital controls and necessitated rouble payments for its fossil fuel exports. Subsequently, Russia and China have intensified their efforts to reduce their dollar dependence and fortify the links between their financial systems. The Moscow Exchange has initiated trading in yuan-denominated bonds and banned the use of dollars as collateral to underwrite transactions. Since Russia’s invasion of Ukraine, yuan-rouble trade has surged. Recently, Russia has been in talks with Iran about a plan to introduce a cryptocurrency backed by gold, while Brazil and Argentina have also proposed the creation of a common currency for their economies. At a meeting in Singapore, former Southeast Asian government officials discussed de-dollarisation plans. In a move away from the dollar, the United Arab Emirates and India are investigating the use of the rupee for their non-oil commodity trading. Presently, 18 nations have agreed to trade with India using the rupee. In recent years, as Saudi Arabia’s rapport with the US has degenerated, the kingdom has fortified its economic bonds with China. In 2020, China became Saudi Arabia’s top trading partner; last year, Saudi Arabia was China’s top crude oil supplier with more than 87 million tonnes shipped. China has proposed using the yuan in their oil trade, and Saudi Arabia has said it is open to pricing its oil in currencies other than the dollar. Such a move would augment the global prominence of the Chinese currency. Meanwhile, Egypt is considering issuing yuan-denominated bonds. In an endeavour to steady its economy and buttress the value of the Egyptian pound, Egypt has resorted to hefty borrowings, resulting in a quadrupling of its sovereign debt over the past decade. Servicing this mostly dollar-denominated debt in a period of global tumult has severely affected the livelihoods of Egyptians. Yuan-denominated bonds could help the country sidestep potential fiscal predicaments triggered by the exorbitant cost of borrowing in dollars. Supplanting the dollar’s domination of the global monetary system will not be easy but the wheels of change have been set in motion and the pace is quickening, with a “petroyuan” and alternative currencies waiting in the wings. The question is, are we ready to adapt and move towards a more equitable and diversified monetary landscape, or will we cling on to the old order and risk stagnation? The answer lies in our collective resolve and action. Saher Liaqat is associated with China-Pakistan Study Centre at the Institute of Strategic Studies Islamabad and is a graduate student of International Relations from the School of Politics and International Relations, Quaid-i-Azam University, Islamabad. Abu Hurrairah Abbasi is associated with the Arms Control and Disarmament Centre at the Institute of Strategic Studies Islamabad and is a graduate student of International Relations from the School of Politics and International Relations, Quaid-i-Azam University, Islamabad.

In a multipolar world, the US dollar’s fall from prominence looks likely

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}De-dollarisation is gaining momentum as more countries voice concerns about the US currency’s dominance in the global financial system and its use as a tool for exerting influence

De-dollarisation is gaining momentum as more countries voice concerns about the US currency’s dominance in the global financial system and its use as a tool for exerting influence