Global economy getting out of the dollar trap

The international monetary system is undergoing an unprecedented change, pivoting away from the US dollar — which can be called "de-dollarization". The United States has been abusing the dollar's monopoly in global trade, reaping massive benefits from the greenback's supremacy and frequently imposing economic sanctions on other countries and entities, which have not only exacerbated global economic risks but also eroded its global credibility.

The first manifestation of dollar hegemony is the siphoning off global liquidity in every dollar cycle. The dollar has reigned supreme in global trade and foreign exchange transactions, and as reserve assets, with the US Federal Reserve literally becoming the world's central bank. The Fed's monetary policy steers the global monetary policy cycle, and the fluctuations in US interest rates have a tidal, siphoning effect on global dollar liquidity. The dollar's trajectory has been rising this year, with the dollar index breaking the 110 mark, a 20-year high, while currencies such as the euro, the yen, the Republic of Korea's won and other major non-US currencies have been pushed over a cliff.

According to the Bank for International Settlements, the nominal effective exchange rate of the dollar against a wide range of currencies, including those of developed and emerging countries, was at its highest level since 1994, when such data were first released. The cyclical fluctuations of the dollar have led to drastic swings in global exchange rate markets. That, in turn, has unsettled the macroeconomic and financial systems of countries and even led to frequent financial crises. The US stands to benefit massively as capital flows into its market, and uses its currency to harvest the wealth of other countries.