Why So Many Countries Are Abandoning the Dollar?

Is the US Dollar losing its dominance?

Let’s look at why some countries have indeed been giving the dollar the cold shoulder as of late. The term we use for this economic phenomenon is “de-dollarisation.” The same thing happened to the British pound at the start of the last century.

British pound

As many of you know, the UK’s superpower status took a hit after the First World War, when its economy shrunk, fighting what it perceived as the globally ambitious upstart nation of Germany. As this happened, the British Pound Sterling as a reserve currency was gradually replaced with the US dollar. The USA came out of WWI in relatively good shape, and after the world war that followed, the US was even stronger, both politically and economically.

Pegging to gold at a fixed rate

In 1944, the Bretton Woods Agreement was signed in which participating nations agreed that their currencies would be pegged to the dollar. The dollar was pegged to gold at a fixed rate. This meant that countries could trade together with a sense of confidence in the stability of each other’s currency. It meant they wouldn’t get into currency wars, wherein a country might purposefully devalue its currency for an advantage in trade.

In short, the agreement was made to make the global economy stable. The International Monetary Fund was created for more stability - to give countries financial assistance if they needed it. After the chaos of the world wars, such stability was a good thing, but, of course, the fact the reserve currency was the dollar was also very good for the USA.

The king of the economic jungle

The dollar became the king of the economic jungle as the USA roared through the 20th century, often doing what the hell it wanted with significant economic and geopolitical advantages compared to other nations. The dollar was in demand. Everyone needed the dollar, and the US-controlled it. Because of that, the US was able to exert influence on other countries. Having the reserve currency also gave the US trade advantages.

There is also something called seigniorage, which in short, means the US made money from the production of the money since the cost of making it was less than what it was worth.

It costs less than ten bucks to make ten bucks, and everyone wants/needs bucks. Ching-ching! This is a very basic explanation, but all you need to know is when the dollar became the world’s reserve currency, that suited the US just fine. The US doesn’t want this to change, but other nations have recently been saying they have been exchanging their dollars for gold at an astonishing rate and also refusing to do certain trades in the dollar. The question is, why?

The reason for refusing the dollar

Let's also give you some examples. In 2023, Saudi Arabia’s Finance Minister, Mohammed Al-Jadaan, shocked the world when he said his country was open to doing oil deals in other currencies besides the dollar. This oil-rich nation had been trading its oil in dollars for 48 years. This was a big story, and there are a few things to consider. China is one of them. Due to China buying about one-quarter of all Saudi Arabia’s oil exports, China is Saudi’s largest trading partner.

The countries have been close for a long time, but it seems they are becoming even closer these days, just as Saudi Arabia’s relationship with the US has been somewhat strained at times. Importantly, Saudi Arabia is also a big part of China‘s Belt and Road Initiative, a multi-billion dollar (maybe a trillion) global development project that gives China tremendous influence around the world.

This will help Saudi Arabia, heavily reliant on its oil exports, to diversify its economy. That will be needed when the world is less reliant on oil. These countries need each other. The two countries just made a deal in which state-owned Saudi Aramco will acquire a 10% share in the Chinese oil refiner, Rongsheng Petrochemical, for $3.6 billion. At the same time, the former will provide 480,000 barrels a day of crude oil to Rongsheng's refinery for two decades.

You can also check this video about the 'de-dollarization':

“post-American” Gulf

It also matters that they’re talking about doing deals in yuan, not dollars. What was even more surprising in 2023 was China mediating between Iran and Saudi Arabia, two countries that have certainly not seen eye-to-eye for a long time. China is brokering deals in the Middle East, while the US relationship with many countries in the region has been quite touch-and-go. Some people have even talked about a “post-American” Gulf.

These nations may want to diversify their economies as the US primes itself for conflicts with China and Russia. They aren’t playing ball with the US, and the US controls the world’s reserve currency, so it makes sense to forgo using that currency. As we said, because the US holds the world’s reserve currency, it can exploit its position.

weaponize the dollar

The word generally used is “weaponize” the dollar, which seems to be motivating countries to trade in other currencies.

The U.S. can implement sanctions on countries, as we’ve seen with Russia; it can devalue its currency to win trade wars, but this might harm the rest of the world. Again, it might make sense to dump the dollar for some nations. This is exactly what China has been saying, that the US has been weaponizing the dollar. It’s less of a weapon, of course, if countries use it less.

The more deals are done in other currencies, such as the Chinese yuan, the less the greenback is like paper kryptonite. It loses its power. To some countries, the US is acting a little roguish, abusing its position as the country with the global reserve currency.

Russia's Invasion of Ukraine

For instance, it was able to freeze $300 billion of the Russian central bank's foreign exchange reserves when Russia invaded Ukraine.

While the US has the full support of many nations, it doesn't in other nations, even if they think Putin's invasion was wrong and what's happening in Ukraine is a terrible thing. Many countries believe this is a proxy war, and the US, a bully to some nations, just flexed its muscles and ignored a rules-based international financial system. This made them worried. They might now be thinking, so, every time the US feels like it; it can just freeze reserves. Some critics have talked about how this has undermined the US’ international credibility.

What if they refuse to do as the US asks? What will happen to them? Countries are suffering because of what is going on in Ukraine, but some of them, especially in the global south and the Middle East, are skeptical about the war and don’t think they should be suffering for it. India’s foreign minister was quite vocal about this when he recently said Europe thinks “Europe’s problems are the world’s problems, but that the world’s problems are not Europe’s problems.”

Some of these more neutral countries are not so critical of Russia, or even if they are, they take a broader view of matters and, because of American foreign policy over the years, might not see things as black and white on the good and evil front.

14th BRICS Summit

So, when at the 14th BRICS Summit in 2022, Vladimir Putin talked about creating a new “international currency standard,” some of them listened.

They might be looking at the US’ many sanctions over the decades and its somewhat coercive diplomacy and wondering if US dollar hegemony is in their best interests. The European Council on Foreign Relations said the world is divided on Ukraine. Importantly, it also wrote, “People in these non-Western countries, and Russia, also consider the emergence of a multipolar world order to be more probable than a bipolar arrangement.”

They’re talking about a “post-Western international order,” which may mean an end to dollar hegemony. What we might be now seeing with countries forgoing the dollar is the start of this.

Here is the date of printing each currency:

Argentina

Argentina was another country that lately announced it would start paying for Chinese imports in yuan, not dollars. The country’s economy minister explained, “Following the worst drought in history, Argentina must keep its (foreign) reserves robust.” In April 2023, Argentina said it was planning on paying for around $1 billion worth of imports in yuan and $790 million of monthly imports after that also in yuan. This no doubt delighted China.

Not so much in the USA. While this might not have anything to do with the war, it shows how the country is strengthening its bond with China, and at the same time, it's saying it wants less reliance on the dollar.

Brazil

Then you have Brazil, which the US has criticized for remaining neutral where the Ukraine war is concerned. Brazil’s President, Luiz Inácio Lula da Silva, is not on any especially bad terms with the US. But his position on Ukraine has not exactly been in line with US and EU thinking.

In 2023, he explained what some politicians and people in the global south have been thinking when he said NATO should not have been installing military bases that close to Russia, given the promises of the past. He criticized Western politicians for “encouraging war” and not doing “enough to negotiate with Russia” in the run-up to Ukraine’s invasion.” He also blamed Ukrainian president Volodymyr Zelenskyy, saying he was “as responsible as Putin for the war.”

The Ukraine foreign minister shot back, “We have to note: Ukraine does not trade its territories.” Silva’s comment made some people’s blood boil, but outside of the mainstream Western media, many analysts have said similar things. The British historian Geoffrey Roberts, whose specialty is Soviet diplomatic and military history, recently wrote in a paper: “Could the war have been prevented by a Russian-Western deal that halted NATO expansion and neutralized Ukraine in return for solid guarantees of Ukrainian independence and sovereignty? Quite possibly.”

Many others say diplomacy was blocked by the US and UK, often citing the former U.S. Ambassador to Russia and presently the CIA Director, William Burns, who, in a cable to Washington in 2008, warned that “unpredictable and uncontrolled consequences” and “war” could happen with the enlargement of NATO. They also might refer to Oleksiy Arestovych, a former military intelligence officer and former advisor to President Zelensky, who in 2019 warned, “Our price for joining NATO is a big war with Russia.”

Some say the US knew there would be war and went ahead anyway to weaken Russia. So some nations might be saying they will not suffer just for the US to gain more global influence. They believe this war could have been prevented, and so they wouldn't be hurt by it.

Also, when European nations found that they couldn’t pay for Russian energy, Russia just demanded that they do the deal in Rubles. Russia supplies gas to 23 European nations. While Europe is against Russia’s invasion of Ukraine, some countries feel they can’t live without Russian gas. Reports state that four countries in Europe have already started to pay in rubles, and 10 European companies have opened accounts at Gazprombank so they can start paying in Putin’s chosen currency. Can the US do anything about such activity? Some think not.

They think the US can’t control other nations anymore, or at least not as it had in the past. Open Democracy wrote in 2023, “The power of Western powers is undeniable, but it is also undeniable that the world is increasingly moving towards multipolarity.” The article said that the global south will not be bullied. Many others argue that the days of “do what we tell you, or else” are coming to an end, and de-dollarization is proof of that. De-dollarization is certainly catching on, which has led some pundits to call this a revolt against the US and its dollar.

They say the weaponization of the greenback doesn’t work anymore. Bloomberg reports that at least “a dozen” countries in Asia are experimenting with a dollar alternative. It said this was “unthinkable” not even that long ago. The criticism isn’t just coming from outside the US. An investment strategist in the US told The Straits Times, “The Biden administration made an error in weaponizing the US dollar and the global payment system. That will force non-US investors and nations to diversify their holdings outside the traditional haven of the US.”

If you like to know more about this topic and the dollar, check Here.