The dollar is gradually losing its value and importance in the global financial system, due to the growing distrust of the US by many countries and the attempts to break away from the US dominance of the dollar in the world. In addition, due to the growing world population, benefits and profits can now be earned by conducting global trade in other currencies.
According to the latest data published by the IMF, the share of the US dollar in global foreign exchange reserves fell to a 29-year low. Although the dollar is gradually losing its grip, it is still strong due to its liquidity, stability and established mechanisms.
According to RT, the dollar’s long-standing position as the world’s dominant currency has been threatened in recent years, amid concerns about the increase in US debt and Washington’s sanctions on its rivals, including Russia.
According to RT, the dollar’s long-standing position as the world’s dominant currency has been under threat in recent years due to rising US debt and Washington’s sanctions on its rivals, including Russia.
Speaking at the BRICS summit in Kazan in October, Russian President Vladimir Putin warned that Washington’s weaponization of the dollar through sanctions and denial of countries access to the Western financial system was a “big mistake” that would force them to “look for other alternatives,” which is already happening.
Quneet Khalilullah, an economic and public policy expert and director of a corporate and management consulting firm, said the global economy is seeing an increase in dollar depreciation as countries diversify their trade and foreign exchange reserves.
This trend is compounded by US actions to weaponize the dollar, such as imposing sanctions and freezing reserves, as seen with Russia.
These actions have eroded trust. Countries are moving away from the US dollar to reduce geopolitical risks and concerns about sanctions. The US tendency to use the dollar as a political weapon has frightened nations, which is why they are on the path to achieving financial independence.
Furthermore, dependence on the dollar exposes countries to the volatility of the US Federal Reserve’s policy, which affects exchange rates and trade balances. Emerging economies are forming regional partnerships and adopting alternative currencies such as the yuan or the euro.
Digital currencies and central bank digital currencies (CBDCs) are enabling more nations to bypass the dollar-based financial system, secure sovereignty and facilitate local trade settlements.
Khalilullah said, “The dollar’s share of global reserves falling to a three-decade low reflects a broader shift in the global financial landscape. While this signal diminishes dominance, the dollar’s status may gradually decline but will remain central to the global economy in the near future.”
September data showed that Moscow and its allies in the BRICS group are using national currencies better in 65 percent of their mutual trade settlements.
International trade expert and economic analyst Adil Nakhuda said that there have been several cases of dollar depreciation throughout history, starting with the yen, then the euro, the yuan and now the currencies of the BRICs.
The yen and the euro have had little impact, the availability of the currency in the global market is a key factor in the dollar’s decline.
The trade deficit created by the United States is the result of an oversupply of the US dollar in foreign markets as it tries to reduce it, which can lead to a decrease in supply and, as a result, its dominance.
An international currency should not only be easily available, but also have minimal government intervention through policies.
The yuan is heavily state-controlled, while other currencies are unlikely to gain importance.
Adil Nakhuda said, “We can see that bilateral agreements are becoming more common because it reduces the risk involved in a third currency.”
However, trade between countries that are not part of the BRICs is still likely to continue in the dollar. As these countries adopt other third currencies, will we see non-dollar-based trade become more prominent? Consider how the dollar is prevalent in informal trade.
