Several countries are engaged in developing ways to conduct international trade using currencies other than the US Dollar. They are also correspondingly reducing the proportion of their foreign currency reserves that are held in dollars or dollar denominated assets. These moves together represent attempts to weaken the dominant position of the US dollar as the reserve currency of the world. They are part of a trend that has come to be called de-dollarization.
The reduction in the degree of dominance of the US Dollar began with the emergence of the Euro as the common currency of the European Union at the turn of the century. Major oil producing countries such as Iraq and Libya started to sell their oil in exchange for Euros instead of the US dollar. However, US imperialism blocked such moves, first by imposing economic sanctions and then by carrying out military interventions against those countries under the garb of waging war against terrorism. However, such aggressive measures by the US have not prevented the attempts by more and more countries to reduce their dependence on the Dollar.
One of the major reasons why countries want to reduce their dependence on the US Dollar is because of its use as an economic and geo-political weapon by the US imperialists. Countries that are considered as adversaries by the US are facing trade sanctions and freezing of their dollar accounts. For example, the Venezuelan regime has been declared illegitimate by the US government. The Venezuelan Central Bank is not being allowed to use its Dollar reserves to import items needed by the Venezuelan people. Other countries facing such US sanctions include North Korea, Iran, Afghanistan, Cuba, Myanmar, Russia and Syria.
A second major reason for countries wanting to reduce their dependence on the Dollar is the massive and growing debt of the US government. The US government keeps on borrowing and printing dollars to finance its enormous military expenditure. It also keeps on borrowing more to service its past debt. This raises the risk associated with the purchasing power of the US Dollar.
Use of national currencies
Several agreements have been made between countries to conduct international trade in national currencies. For example, China and Brazil have concluded a deal to trade in national currencies. They have agreed to swap Chinese Renminbi (RMB) for Brazilian Reals without the use of the US Dollar. Recently, Saudi Arabia, Kenya, and the United Arab Emirates have also struck deals to trade petroleum products in national currencies.
In 2009, China launched the RMB Cross-Border Trade Settlement Pilot Scheme, which allowed companies to settle trades in RMB instead of dollars. Since then, China has expanded the use of the RMB in trade settlement by establishing currency swap agreements with more than 30 countries and regions. China has also been promoting the use of the RMB in the Belt and Road Initiative, a massive infrastructure project that spans more than 60 countries and regions.
The Indian Ministry of External Affairs announced in the beginning of April this year that trade between India and Malaysia can now be settled in Indian Rupees. Earlier, the Reserve Bank of India had announced that talks are going on with several South Asian countries to conduct cross-border trade in rupees. India’s rupee trade settlement mechanism is also attracting interest from several other countries. Tajikistan, Cuba, Luxembourg, and Sudan have begun talking to India about using this mechanism. It has already been used by Russia following the imposition of American sanctions following the war in Ukraine. India is now looking to include more countries that are short of dollars into the mechanism2.
The BRICS group, consisting of Brazil, Russia, India, China and South Africa, had announced as far back as in June 2009, that there was a need for a new global reserve currency. On 30 March, 2023, the Deputy Chairman of Russia’s State Duma, Alexander Babakov, said that the BRICS is working on developing a “new currency” that will be presented at the organization’s upcoming summit in Durban in August 2023.
Finance ministers and central bank governors of the ASEAN grouping of ten countries of South-East Asia, namely, Indonesia, Vietnam, Laos, Brunei, Thailand, Myanmar, the Philippines, Cambodia, Singapore and Malaysia, met in April 2023. They discussed ways to reduce dependence on the US Dollar and move to settlements in local currencies.
De-dollarization of Foreign Currency Reserves
The trend towards conducting trade in currencies other than the Dollar has been accompanied by a decline in the share of the Dollar in foreign currency reserves held by the various states of the world. This share has declined from 67 percent in 2002 to 58 percent in 2022 (Chart A). The US Dollar used to account for almost 85% of the all the reserves in the 1970s. The share of Euro in global reserves rose to 24 percent by 2012 and has declined since then. Other than the Euro, the shares of the Japanese Yen and the British Pound have grown to be roughly 5 percent each. The Chinese Renminbi accounts for a little less than 3 percent.
China, Japan and oil producing West Asian countries had accumulated US dollars because of their trade surpluses. They had been buying US treasury bonds with their surplus dollars. They are now reducing their exposure to the Dollar. The reduction in China’s holding of US bonds since 2010 is shown in Chart B.
Building up of gold reserves
Unlike fiat currencies which have no real value themselves and are not even linked to anything of real value, gold is a reliable repository of value. Several countries are acquiring gold to decrease their dependence on US dollars and hedge against any major global economic collapse.
Some of the central banks who have acquired large amount of gold between Sept 2021 and May 2023 are: China – 128.5 metric tonnes (MT), India – 91.6 MT and Turkiye – 88.2 MT. Countries that have acquired more than 30 MT of gold in 2022 include Egypt, Iraq, Qatar and Russia. The first quarter of 2023 was the strongest quarter on record for central bank gold purchases with central banks buying a combined total of 228 MT, with Singapore alone accounting for 68.7 MT.
While the US Dollar remains by far the most used currency for international trade, several countries are trying to reduce their dependence on this currency. They are working out ways to conduct trade in other currencies and reduce the share of the US Dollar in their foreign currency reserves. They are trying to make themselves less vulnerable to US sanctions and to reduce their exposure to the risks arising from the unsustainable monetary policy of the US.
 Michael Snyder, The Dollar Is in Trouble! Here Are 7 Signs that Global De-Dollarization Has Just Shifted Into Overdrive, April 16, 2023