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China Daily Global / 2023-04 / 11 / Page006

US dollar's influence seen eroding

By HENG WEILI in New York | China Daily Global | Updated: 2023-04-11 00:00

Pessimism voiced over 'crashing' currency's path as volumes diminish

One of the byproducts of the ongoing political division in the world has been a gradual shift away from the US dollar, the dominant currency in international trade. However, pessimism about the dollar's path has been expressed by prominent people in the United States.

"Our currency is crashing and will soon no longer be the world's standard, which will be our greatest defeat, frankly, in 200 years," said former US president Donald Trump in a speech on April 4, the day he was indicted by a New York City grand jury over a hush money payment.

On March 29, billionaire Elon Musk, CEO of Tesla and Twitter, in response to a tweet skeptical about the dollar retaining world currency reserve status, wrote: "Serious issue. US policy has been too heavy-handed, making countries want to ditch the dollar."

Musk wrote that the situation was worsened by "excess government spending, which forces other countries to absorb a significant part of our inflation".

Brazil and China agreed at the end of March to use their own currencies when settling financial transactions.

The Chinese yuan has also replaced the dollar as the most traded currency in Russia, a result of a slew of Western sanctions against Moscow, Bloomberg reported on April 3.

Robert F. Kennedy Jr, a scion of the US' most storied political dynasty, has concluded that the US strategy to maintain global hegemony through military power has failed.

The collapse of US influence over Saudi Arabia and the Kingdom's connection with China and Iran "are painful emblems of the abject failure of the Neocon (neoconservative) strategy of maintaining US global hegemony with aggressive projections of military power", Kennedy, nephew of the late president John F. Kennedy, wrote on Twitter on April 3.

"China has displaced the American Empire by deftly projecting, instead, economic power. Over the past decade, our country has spent trillions bombing roads, ports, bridges, and airports," wrote Kennedy, who plans to seek the Democratic nomination for president in 2024.

"China spent the equivalent building the same across the developing world," he wrote. The Ukraine conflict "is the final collapse of the (neocons') short-lived 'American Century'".

Kennedy said that US military involvement in Iraq and now Ukraine has cost $8.1 trillion and "hollowed out our middle class, made a laughingstock of US military power and moral authority …destroyed the dollar as the global currency, cost millions of lives and done nothing to advance democracy or win friendships or influence".

French President Emmanuel Macron, in an interview with Politico published on Sunday, said Europe needs to reduce its dependence on the "extraterritoriality" of the dollar.

The move away from the dollar has gained momentum since the start of the Russia-Ukraine conflict.

Alexander Babakov, deputy chairman of Russia's State Duma, said that the BRICS nations are poised to create a new payments system.

Western countries froze hundreds of billions of Russia's foreign currency reserves last year and removed Russian banks from the SWIFT international payments system.

Rattled by 'weaponization'

"The so-called dollar 'weaponization' has rattled many countries and not just Russia," said Jason Hollands, managing director of Bestinvest, an investment platform, reported, a website in Mumbai, India. "Countries willing to continue to trade with Russia, like India and China, have started doing so in rupees and yuan instead, triggering talk of the de-dollarization of the international trading order."

The US dollar became the official reserve currency of the world in 1944 at a gathering of 44 allied nations in New Hampshire known as the Bretton Woods Agreement.

Since then, the dollar has given the US an inordinate amount of influence over other economies, and Washington has long used economic sanctions to achieve foreign policy goals.

The dollar's share of global foreign exchange reserves was below 60 percent in the fourth quarter of 2022, according to the International Monetary Fund's Currency Composition of Official Foreign Exchange Reserves.

"China has already helped launch the Asian Infrastructure Investment Bank as an alternative to the World Bank within the Asian region. If it can indeed tackle the influence of the World Bank and IMF within the region, it might be possible for the yuan to become competitive against the US dollar in the long run," M.M. Akash, chairman of the Department of Economics at the University of Dhaka, told The Business Standard newspaper.

In 2014, the BRICS nations formed a $50 billion New Development Bank as an alternative to the World Bank and the IMF. They also established a joint liquidity reserve to ensure that members could meet debt repayments.

As for the BRICS' potential currency, it could happen as soon as August, when the member countries meet at their annual summit in South Africa, according to observers.

"New Delhi, Beijing and Moscow are the nations that now institute a multipolar world that is endorsed by the majority of governments," Babakov said.

Secretary of Iran's Supreme National Security Council Ali Shamkhani said on Sunday in a meeting with the Russian president's aide Igor Levitin in Teheran that reducing the US dollar's influence on regional and international trade will minimize the West's domination over the global economy, according to SNSC-affiliated Nour News.

During the meeting, Shamkhani said the process to reduce the dollar's clout on regional and international transactions has already started, noting that many countries are joining the path.

The dollar comprised 69 percent of global currency reserve holdings in 2007, according to The Daily Telegraph in Australia. The yuan, or renminbi, advanced to the fourth position in the international payments market earlier this year, behind the dollar, the euro and the yen. In 2010, the yuan was ranked 35th.

Economist Nouriel Roubini wrote in the Financial Times in February that the US has taken steps that have reduced "the appeal of dollar assets among foes and relative friends".

Meanwhile, Saudi Arabia, Iran, India and the United Arab Emirates have begun exploring alternatives to the US dollar for oil payments.

Agencies and Xinhua contributed to this story.


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