Dollar's empire is getting challenged

 


The dominance of the US dollar is being challenged by other major currencies. The reason for this is American policies themselves. Rivalry with China, the shockwaves of the Ukraine war and the US debt crisis have forced a rethink of the dollar's status as the world's leading currency, experts say.


Some major economies are looking for an alternative to the US dollar in global trade. These include countries like Russia, China, India and the United Arab Emirates. A dozen small Asian countries like Bangladesh are also doing mutual trade in local currency.


According to experts, the upheaval in global trade continues. India is buying Russian oil in UAE dirham and ruble. China bought Russian oil, coal and metals worth $88 billion in yuan. The yuan's share in global foreign exchange transactions has risen to 7 percent.

Dollar share in forex at 20 year low


According to the International Monetary Fund, in the fourth quarter of 2022, the dollar's share of foreign exchange reserves of central banks around the world fell to a 20-year low of 58 percent. Now it has come down further to the same level as in 1995.


Stephen Jane, CEO of Eurijon SLJ Capital, said sanctions were imposed on Russia after the invasion of Ukraine.


■ It allowed countries like Saudi Arabia, India, China and Turkey to trade in other currencies

forced to think.


Role in increasing inflation too If a currency becomes too weak against the dollar, oil and other commodities traded in dollars become costlier. This increases inflation in importing countries.

Finding alternatives is not that easy either.


■ Bringing everyone together is very difficult: To challenge the hegemony of the dollar, it is necessary to bring together exporters, importers, currency traders and creditors. But, it is a vast and complex process.


■ 90 per cent stake in global transactions According to BIS data, the dollar accounts for 90 per cent of global foreign exchange transactions. In 2022, $ 6.6 trillion was traded in US currency.


■ Nearly half of all offshore debt is in dollars.


It will not be easy for banks, companies and governments to suddenly stop trading in dollars, said Berkeley economics professor Barry Eichengreen.

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