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What is De-Dollarization? Are Nations Going to “Dethrone The Dollar”?

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What is De-Dollarization? Are Nations Going to “Dethrone The Dollar”?

The start of 2023 had the world questioning an ongoing economic crisis. With giant banks going bankrupt, tech giants laying off employees, and just utter chaos economically. Amid the start of the war between Russia and Ukraine, The world has closely observed seismically altering trends in the fields of economics, geopolitics, and culture. The world is marching towards an even distribution of global power rather than being hyper-fixated on one dominant one. In this case, the United States—is perhaps the conflict’s most significant effect on the world (and is still having). Furthermore, the tendency toward de-dollarization is what underlies much of this pace.


Several of the largest economies in the world are looking for alternatives to the US dollar because they are sick of an overvalued and freshly armed greenback.


Smaller countries, many of them in Asia, are experimenting with de-dollarization in 2023 as well. Since they are concerned about additional dollar strength, corporations all across the world are selling an unprecedented amount of their debt in local currencies.


Where Did it Come From?

De-dollarization’s impact has been, observably, a long-term process that has arisen over the previous two decades, and this has to be made clear right now. Despite the US economy’s declining share of global output over the past two decades, the dollar continues to play “an outsized role” in international markets, according to a March paper from the International Monetary Fund (IMF). It also continues to dominate global trade, international debt, and non- bank borrowing, far exceeding the US’s share of trade, bond issuance, and international borrowing and lending.


What is Dollar To Global Economy

The Bretton Woods Agreement made the U.S. dollar the recognized reserve currency of the world, backed by the greatest gold reserves on earth. Other nations amassed US dollar reserves as opposed to gold reserves.


Countries started purchasing U.S. Treasury securities because they needed a place to store their dollars and thought it was a secure place to keep their money.



Russia’s Sanctions

As Russia invaded Ukraine in February 2022, financial sanctions against Moscow were imposed under American leadership. The decision by Western governments to freeze nearly half ($300 billion) of Russia’s foreign exchange reserves and the exclusion of major Russian banks from SWIFT, an interbank messaging system that facilitates international payments, are two of the most significant of these.


Source: https://cloverclients.com/what-is-de-dollarization-are-nations-going-to-dethrone-the-dollar/

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