De-dollarization: A Global Trend and Its Implications for the World Economy

　　Since the onset of this year, in the context of the Federal Reserve’s persistent tightening of monetary policy, numerous countries and regions across the globe have declared measures to diminish their reliance on the US dollar. In late April, Bank Indonesia Governor Perry publicly asserted that Indonesia has accomplished local currency settlement with China, Japan, Malaysia and Thailand, and is currently negotiating with South Korea to materialize “local currency transactions” in May this year. As the rotating presidency of the G20 in 2022, Indonesia has hoisted the banner of “de-dollarization”, which indicates that fostering currency multipolarity and reducing dependence on the US dollar has increasingly become the consensus of most countries in the world.
“De-dollarization” has turned into a raging inferno

　　For a long time, the U.S. dollar has wielded an exceedingly significant impact on the global trade pattern and financial markets based on the four vital functions of international reserves, international settlements, valuation standards, and currency intervention. However, in recent years, the “exorbitant privilege” of the US dollar has begun to be contested. From a historical perspective, the pace and magnitude of this round of de-dollarization are exceedingly rare, and the international economic and financial structure has entered a new conduit of accelerated adjustment.
　　First, there is a potent incentive for emerging market countries to liberate themselves from the control of the dollar. In fact, before Indonesia, the appeal for “de-dollarization” has echoed in many countries in the Middle East, South America and Southeast Asia. In January this year, Saudi Arabian Finance Minister Mohammad Al-Jadan stated at the annual meeting of the Davos Economic Forum that Saudi Arabia is willing to contemplate settlement of oil trade in non-dollar currencies. open-minded; in the same month, Brazil and Argentina, the two largest economies in South America, jointly announced that the two countries were preparing for the establishment of a common currency “sur”; also in January, Iran and Russia were discussing joint creation of an anchor Cryptocurrency of gold in order to circumvent US dollar sanctions; in February, the Central Bank of Iraq announced that it would allow direct settlement of trade with China in RMB, and as part of the plan, the bank will also augment its balance in the RMB account of the Bank of China in the future;3 On April 28, the finance ministers and central bank governors of ASEAN countries convened in Bali, Indonesia, and had a spirited discussion on how to reduce the dependence on the US dollar, euro, yen and pound in financial transactions; on April 4, just finished their visit to China Malaysian Prime Minister Anwar, who was on the trip, said in Congress that during his attendance at the Boao Forum for Asia Annual Conference, he proposed to China the idea of ​​establishing an “Asian Monetary Fund” in order to reduce Asian countries’ dependence on the US dollar and the International Monetary Fund. At the same time, he pointed out that Malaysia The central bank has initiated discussions with China on settlements in ringgit and yuan for trade between the two countries.

　　Second, the geopolitical dimension of the “de-dollarization” issue is progressively waning. In the past, the U.S. dollar enjoyed supremacy due to its so-called “international privilege.” For many countries, “de-dollarization” is not only an economic and financial issue, but also a delicate and intricate geopolitical issue. But now, as more and more allies of the United States begin to actively partake in the “de-dollarization” process, the political leadership and control of the US dollar is expected to be further eroded. Recently, French geopolitical expert Renault Girard published an article in Le Figaro, publicly lambasting the US government for its excessive use of US dollars, pointing out that the current global trend of “de-dollarization” is instigated by the US itself. Against the backdrop of French President Emmanuel Macron’s visit to China, Sino-French oil giants completed the first cross-border RMB settlement transaction for liquefied natural gas (LNG). It is foreseeable that, driven by the demonstration and impetus of France, the “European strategic autonomous vanguard”, more EU countries may actively probe the path of “de-dollarization” and put it into action. In addition, Japan and South Korea sold U.S. debt sharply as early as last year, and they have actually “unsheathed their swords” to the U.S. dollar. Australia also started the exploration of “de-dollarization” by using RMB for settlement in iron ore trade with China for the first time. the road.
　　Third, opportunities for RMB internationalization have increased markedly. “European Times” published an article on April 1 that at present, more than 30 countries are gradually shifting to use RMB in trade settlement or investment. The Saudi Arabian cabinet approved the country’s decision to join the Shanghai Cooperation Organization on March 29. At the same time, the Export-Import Bank of China has successfully reached the first RMB loan cooperation with the National Bank of Saudi Arabia, which will make the Middle East trade settlement in RMB in the future. The possibilities are gradually increasing. In South America, on February 7, the People’s Bank of China and the Central Bank of Brazil signed a memorandum of cooperation on the establishment of RMB clearing arrangements in Brazil, which means that Brazil is expected to directly use RMB with China in the future for larger trade and financial transactions. It should be acknowledged that with the advancement of the wave of “de-dollarization”, the scope and use scenarios of RMB are gradually expanding. The conclusion of the first LNG RMB settlement agreement between China and France not only shows that the fundamentals of the West have been loosened at the currency level, but also means that the internationalization of the RMB has gained further momentum and vitality.

　　Multiple factors ignite the frenzy of “de-dollarization”

　　According to statistics, more than 50 countries around the world have embarked on “de-dollarization”. Although the political and economic situations faced by countries are quite diverse, the reasons for opting for “de-dollarization” are essentially the same.
　　First, the hegemony and “weaponization” of the US dollar severely depletes the credit of the US dollar. Over the years, the United States has used the dominant position of the US dollar to arbitrarily impose unilateral sanctions on other countries, causing many countries to “endure the US dollar for a long time.” After the Ukrainian crisis erupted, the United States imposed multiple rounds of unprecedented harsh sanctions on Russia, especially using the U.S. dollar as a sanctions weapon, which completely stimulated the “bottom-line thinking” of various countries. Many countries worried that they would face similar situations in the future, so they joined the “De-U.S. Dollar” the ranks of “. The U.S. sanctions against Russia have also evoked international media to revisit a history of “blood and tears” of BNP Paribas. In 2014, the U.S. Justice Department fined BNP Paribas nearly $9 billion for accusing it of transferring funds to countries it imposed sanctions on — Sudan, Iran and Cuba. This incident shows that all countries in the world, even countries that have good relations with the United States, have to succumb to the hegemony of the US dollar.
　　Second, the irresponsible monetary policy of the United States harms others and itself. In order to curb the unprecedented high inflation in the United States in 40 years, the Federal Reserve has raised interest rates nine times since March last year, pushing the federal funds rate to a record high. Under the influence of the Federal Reserve’s aggressive interest rate hike policy, the dollar continued to strengthen, leading to a sharp depreciation of the currencies of a large number of economically fragile countries, high inflation, and continuous capital outflows. The appreciation of the U.S. dollar has also led to a continuous rise in U.S. bond yields, which has pushed up the debt repayment costs of emerging markets and developing economies, increased their debt default risks and systemic financial risks, and greatly weakened their prospects for economic recovery. In the future, once the Federal Reserve starts the process of cutting interest rates, a large number of dollar capital returning to the United States during the interest rate hike cycle will “set out” again to “tidal harvest” the assets of other countries. Global capital is almost “played” by the dollar in the palm of its hand. The recent collapse of the Silicon Valley Bank in the United States has exposed many drawbacks of the Fed’s aggressive monetary policy, causing many countries to worry about the outbreak of the global financial crisis.

　　Third, the accelerated changes in the world economic structure require countries to re-balance the pros and cons. At present, the world economic structure is different from that at the inception of the Bretton Woods system. The United States has lost its absolute advantage in the economic field, and the economic gap between North and South countries is gradually narrowing. According to the 2022 World Economic Outlook Report released by the International Monetary Fund, in terms of purchasing power parity, the BRICS countries’ gross domestic product (GDP) accounted for more than the G7 in the world’s GDP. In this context, a large number of emerging market countries have become the driving force in the wave of “de-dollarization”, and they are committed to getting rid of the control of the US dollar and promoting the influence of their own currencies. In addition, as other international currencies, such as the euro and the Japanese yen, already have relatively complete international payment and reserve functions, they gradually challenge the hegemony of the US dollar, and a pattern of diversification of the international monetary system is taking shape.
It is necessary to keep calm thinking about “de-dollarization”

　　But “de-dollarization” does not mean abandoning the dollar. For a long period of time in the future, no country has the willingness and ability to do this.
　　Compared with other currencies in the world, the US dollar still has incomparable advantages in terms of liquidity and stability. Statistics from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) show that by the end of the fourth quarter of 2022, the US dollar accounted for 41.89% of international payments, the euro accounted for 36.34%, and the renminbi accounted for only 2.15%; among the global reserve currencies The dollar’s share is approaching the 60% level. Therefore, the current “de-dollarization” promoted by countries around the world is essentially “de-dollar hegemony”, that is, to reduce dependence on the US dollar in the fields of trade, settlement, and reserves, and to increase the use of domestic currencies or other foreign currencies, thereby strengthening various countries’ economic and financial independence and promoting The transformation and upgrading of the international financial system.
　　While the world is setting off a wave of “de-dollarization”, there are still some countries that have to hand over their “financial dominance” to the US dollar due to domestic political and economic difficulties. Countries such as Zimbabwe, Venezuela, and Lebanon have all experienced varying degrees of “economic dollarization” after experiencing hyperinflation and the collapse of their currencies. This dollarization is not dominated by political will, but the result of natural selection by the market. This also shows that although the trend of currency multi-polarization has emerged, because the US dollar still has great advantages over other international currencies in terms of stability and liquidity, it is difficult to change the dominant position of the US dollar in the short term.
　　To sum up, “de-dollarization” is a long-term process from quantitative change to qualitative change, spiral upward, and zigzagging forward. Looking back at history, “de-dollarization” has existed since the US dollar became the equivalent of gold and assumed a central position in the post-war international monetary system. It is too early to think that this round of “de-dollarization” can completely change the dominance of the US dollar. As more and more countries begin to consider reducing their dependence on the U.S. dollar in international trade and financial reserves, and choose to use their own currency or other currencies according to their vital interests and development needs, the world monetary system will inevitably move towards multipolarity direction further.