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US Dollar’s Dominance Is Slipping

Updated: Apr 27, 2023



As it occurs, the dollar is progressively disappearing and the world economy no longer depends on it. For the US, the demise of the dollar may be a terrifying idea, but it may also usher in a multipolar, more just world that is good for trade and stability on a global scale.

The supremacy of the dollar has allowed official Washington to impose control over the world economy. The greenback is utilised in the majority of international trade, debt servicing and oil sales, since it is the world's reserve currency. This enables the US to preserve its position as the greatest economy in the world while running ongoing trade deficits and borrowing at low rates.

However, this has brought about problems for some nations. In order to safeguard themselves against currency swings and economic shocks, governments are required to maintain sizable reserves of dollars. The increase in demand for dollars places nations at the mercy of American economic policies because adjustments to its monetary and trade policies can have a large impact on the world economy.

Backed by Thin Air

It wasn't until the 1900s that the US printed its first dollar that was secured by gold reserves. The gold standard was later eliminated by Washington, and the dollar is currently only backed by a thin layer of air.

New agreements between oil-producing countries, like the one between Saudi Arabia and China that permits the transfer of oil in Chinese currency, are upending the existing quo. Another effective example of this is development of the China International Payment System, which the country created in an effort to lessen its reliance on the petrodollar system.

The dollar's value has decreased as well. The Fed's monetary policies are cited as the primary causes of the dollar's value decline, together with its shrinking proportion in the world's money supply. Countries with close commercial ties to China have been raising their yuan-denominated central bank reserves. Yuan has a real chance of competing favourably with the dollar as the world becomes more multipolar. The declining dominance of the petrodollar shows that both the importance of the US and oil is waning.

Transition to a Multipolar Currency System

The decision by governments to pursue safer alternatives to the US currency has contributed to a portion of the dollar's value decline. According to economists' studies, the yuan can only move up from its current position to increase in value because it is currently in a position similar to that of the dollar.

There may still be a case for a stronger dollar, but that seems quite improbable. In the era of going big, a multipolar monetary system has the advantage of lessening the influence of any one nation on the world economy. It can increase stability and lessen the possibility of economic shocks by making it harder for any one nation to have an undue influence on the rest of the world.

Additionally, it would level the playing field for nations who have historically suffered disadvantages under the current system. For instance, many Latin American and African nations are compelled to use the dollar exclusively for international trade, which makes it more challenging for them to compete with larger, more advanced economies. These nations would be less dependent on the dollar and would have more chances for trade and investment under a multipolar currency system.

To catch the essence of this moment, the dollar’s dominance is slipping and it has ceased to be the predominant global reserve currency. A multipolar monetary system has the potential to promote better international coordination and collaboration. While the switch to a multipolar monetary system wouldn't be without difficulties, it might ultimately be a good thing for global trade.


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