Contesting the hegemony of the dollar

#GS-02 International Relations, #GS-03 External Sector

The threat to Dollar centric trade

Countries outside the West particularly the Global South are finding ways to circumvent dollar in their international trade through;

Currency swap agreements;
Trade in national currencies bypassing the dollar;
Steps towards trading oil and gas in national currencies;
The promotion of such arrangements by regional organisations;
The setting up of special accounts for internationalising national currencies; and
The setting up of financial communications systems.

Trade wars against China since 2018 have set China to move away from the dependency on dollar.
The Russia-Ukraine war also hastened this development since it has forced Russia to trade oil and commodities in Ruble and other national currencies.
The steady but unequal growth of the ‘emerging economies’ is another major cause for economic diversification.
This becomes evident when you see that the combined GDP of China, India, Russia, South Africa, Indonesia, Brazil, Iran and Turkey is larger than that of the G7 countries.
Since 2015, BRICS’s New Development Bank has been disbursing up to 50% of its loans in national currencies in order to encourage trade and investment in national currencies.
Bilateral currency swaps among ASEAN countries, China, Japan, South Korea are on the rise.
Emerging economies have initiated trade in national currencies bypassing the dollar mainly due to high exchange rates of the dollar.
Another serious challenge to the hegemony of the dollar comes from the trade of oil and gas outside the dollar zone.

One challenge for de-dollarisation is that the national currencies are not fully convertible.
Despite the rise of alternate systems of trade dollar still makes up 60% of the global currency.
It will also pose major challenge to the countries that have trillions of dollars as reserve currency including China.

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