ZoneBitcoin EditorialThe US dollar occupies a dominant position in the global economy, used mainly in current trade. However, for several years, the world has witnessed a phenomenon of increasing de-dollarization, marked by a reduction in dependence on the American dollar in international transactions. According to the IMF COFER database, while the American dollar held 72% of central bank reserves in the world, this fell to 58% in 2022.
This aspiration for dedollarization is highly sought after by emerging countries who wish to gain economic autonomy. So, the BRICS summit held in South Africa has just expanded the list of these members to now include Argentina, Egypt, Iran, Ethiopia, Saudi Arabia and the United Arab Emirates. This then gives more weight to emerging countries which could constitute a new force in the current global economic game.
This article examines the main trends in dedollarization, its impacts on the global economy and the role that Bitcoin can have in the new global scene.
What are the factors driving dedollarization?
It is important to note that de-dollarization does not necessarily imply a complete abandonment of the dollar, but rather a reduction in its dominance in international transactions and reserves. This trend reflects countries' efforts to increase their economic resilience and self-reliance in an increasingly complex and interconnected international monetary system.
Here are the main factors that are pushing more and more countries to desire the dedollarization of the global economy.
Economic Factors
One of the key economic drivers of dedollarization is the desire of countries to mitigate the risks associated with overreliance on the US dollar. A large part of international transactions, foreign exchange reserves and debts are denominated in dollars. This makes countries heavily dependent on US monetary and economic policy. By diversifying their reserves and transactions into other currencies, countries seek to reduce their exposure to these risks.
Similarly, the United States has used its dominant position in the global financial system to impose economic sanctions on countries. This explains why the United States has imposed numerous embargoes and economic sanctions on countries that did not follow their directives. Russia and Iran, for example, have sought to circumvent US sanctions by developing payment systems and financial mechanisms independent of the dollar. Recently, Iran has decided to accept payments in cryptocurrencies in order to specifically bypass the American banking system. Similarly, " following the invasion of Ukraine, Western countries cut Russia off from the international financial system. They froze nearly $300 billion in assets belonging to its central bank, which were deposited with various institutions around the world"Such sanctions may explain the desire of states to free themselves from the domination of the US dollar.
Political and geopolitical factors
Geopolitical tensions between the United States and certain countries have also prompted the latter to explore alternatives to the dollar. Countries are increasingly seeking autonomy and monetary sovereignty. By having their own currency as an alternative to the dollar, countries can exercise greater control over their monetary and economic policy. They can adjust their exchange rates and monetary policies according to their internal economic needs rather than being influenced by decisions made in the United States.
Overreliance on the dollar can make countries vulnerable to sudden fluctuations in that currency. By diversifying their reserves into other less volatile currencies, countries could better protect themselves against economic and financial shocks.
The impact of dedollarization on the world and the United States
De-dollarization could have significant implications for the United States. As a dollar-issuing country, the United States enjoys a " exorbitant privileget » that allows them to finance their deficits at relatively low interest rates. If the dollar were to lose its status as the world's reserve currency, the United States could be forced to face increased borrowing costs and economic instability. In addition, the United States would lose its privilege and monetary dominance over the entire planet.
In his work » Exorbitant Privilege: The Decline of the Dollar and the Future of the International Monetary System, the Economist Barry Eichengreen, asserts that the dollar is at the genesis of the global financial crisis of 2007-2008. For him, it is preferable to create a multipolar world with an international monetary system that is also multipolar, thus leading to a reduction in the dominance of the dollar.
Do BRICS want to create a new currency?
The ambition for dedollarization has been expressed several times by BRICS members. Besides, dedollarization is not a new concept. Countries like Russia and China have long expressed their dissatisfaction with the hegemony of the dollar for years. However, these efforts have often been hampered by a series of obstacles, including the lack of credibility of alternative currencies and the deep integration of the dollar into the global financial system.
In 2015, BRICS created the New Development Bank (NBD), an international financial institution based in Shanghai, intended to offer an alternative to the International Monetary Fund (IMF) and the World Bank. The NBD aims to finance the development of its member countries by providing loans in their local currencies, thereby reducing their dependence on the dollar.
Finally, among the ambitions and projects of BRICS represents the creation of a common currency between BRICS members, which could then be extended to other emerging countries. However, this proposal, which is interesting in several respects, presents significant challenges, including the difficulty of acceptance of such a currency by global markets. Thus, although "the BRICS member states – collectively and individually – intend to protect their global financial interests by developing a reserve currency, the excessive dependence on the US dollar poses challenges that could make such an idea a distant reality," says theObserve Research Foundation.
Additionally, there are many political and economic differences among BRICS members that make this idea difficult to realize. The entry of new countries into BRICS will perhaps help to open up the question once again.
In reality, even if there are always more voices raised for a dedollarization of the world, it is not an easy task. It would then seem that the most likely alternative is for the dollar to be gradually replaced by another reference currency. Currently, the currency that could potentially dethrone the dollar is the yuan. However, the Chinese currency does not seem to be able to compete with the dollar in the current conjecture.
Lire: Can BRICS Currency Benefit Bitcoin?
Can bitcoin be an alternative?
Despite the challenges, dedollarization is underway and it seems inevitable BRICS continue to promote the use of their local currencies and seek alternatives to the dollar. One alternative would be to use bitcoin as a store of value, says economist Saifedean Ammous. Indeed, by being decentralized, bitcoin is not under the control of a central authority, which means that it is not subject to the monetary policies of a government. This has a clear advantage in avoiding monetary manipulation.
More generally, bitcoin could transform the global economic order and offer new opportunities for emerging and developing countries. Countries like le Salvador and the Central African Republic have legalized bitcoin, and present it as an alternative to the national currency.
However, volatility (although it decreases over time) presents an obstacle to the consideration of bitcoin as an alternative currency. Furthermore, unlike the dollar, bitcoin lacks institutional and governmental support.
It should be noted that debates on the subject evolve as the technology and adoption of cryptocurrencies advances around the world.
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