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The Erosion of US Dollar's Value in South America

Updated: Apr 27, 2023



South American nations have been increasingly moving away from utilising the US dollar as their main trading currency in recent years. The change is mostly a result of Brazil's expanding economic might and China's rise as a significant regional power.


The recent agreement between China and Brazil to trade in their own currencies is evidence of this migration away from the US dollar and is likely to significantly erode the value of the US dollar in South America.


The rise of China as a significant economic force has been one of the fundamental forces behind this trend. In recent years, China has made significant investments in South America, with an emphasis on infrastructure development and resource extraction. China has thus grown in importance as a trading partner for many nations in the region. As a result, many nations now long to trade in their own currencies instead of being compelled to use the US dollar.


South American nations are eager to abandon the US dollar for a number of reasons. The currency's volatility is one of the most important. Rapid fluctuations in the value of the US dollar can make it challenging for nations to adequately plan and budget for trade. Furthermore, the US dollar's supremacy gives the country a huge economic and geopolitical advantage, which many nations in the region are eager to lessen.


Wanting more economic independence is another factor in the migration away from the US dollar. Countries in South America are able to assert more control over their own economy and lessen their reliance on external powers like the US by trading in their own currencies.


Economic sanctions being frequently used by the US government has significantly fuelled recent calls for a new global monetary system. Calls for reform have also increased as a result of the confiscation of Russian, Iranian, Venezuelan, and Afghan currency reserves that were deposited in banks in the US and Europe.


The growing usage of alternative payment methods and currencies is another reason causing the US dollar to lose value. Blockchain and cryptocurrency technologies have made it simpler than ever for people and companies to undertake cross-border transactions without depending on conventional financial institutions.


New, independent of any one nation-state or central bank currencies, like Bitcoin and Ethereum, have emerged. The US dollar's depreciation has also been influenced by geopolitical unrest. Many of America's old allies and economic partners have been hostile because of the "America First" ideals, aggressive trade practises, and isolationist tendencies. Consequently, some nations have worked to lessen their reliance on the US currency.


Despite these difficulties, it is significant to remember that the US dollar continues to be the most often used currency for cross-border transactions, making up nearly two-thirds of the world's foreign exchange reserves. However, it is likely that the function of the dollar will continue to develop and evolve as the globe becomes more connected and globalised. It remains to be seen if this will finally result in the demise of the US dollar's hegemony.


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