The world is moving to Dedollarisation, with Brazil Prez latest to criticise US hegemony in world trade

Brazil's President Luiz Inacio Lula da Silva criticised the US dollar's role in the world economy during his official visit to China. French President Emmanuel Macron too, while visiting China, suggested that Europe should decrease its dependence on the US dollar. 

• Several countries including India, China, Russia, Malaysia, Brazil, etc are setting up special payment systems to facilitate bilateral trading in domestic currencies, leaving out the US dollar. 

• Lula suggested that BRICS should have a currency other than the US dollar to facilitate trade between members - Brazil, Russia, India, China, and South Africa. 
• India has also taken several measures to facilitate trade in rupees or other participating countries' currencies. 

But why is the world trying to reduce the US dollar hegemony?

After World War II, the US dollar replaced the British Pound as the dominating currency worldwide. In 1944, the Bretton Woods Agreement established the US dollar as the world's reserve currency. Now, the original BWA is dead, but the dollar remains the international reserve currency. 

• Currently, over 60% of the world trade is still in the US dollar, despite talks of dedollarisation. 
• However, the US dollar is losing its sheen in the eyes of several countries. There are multiple factors to it that have made holding on to the US dollar risky for the economies of various countries. 

War and sanctions

• The first obvious naysayers of the US dollar are countries that have beef with Washington; for example, Russia and China. 
• The US exerts world dominance by using or in some cases overusing the fact that its currency is the international reserve currency. 
• The US has become the top sanctions-imposing country in the world. It can impose sanctions on countries, individuals, and organisations for not aligning with its views. 
• Russia bore the brunt of it since the start of the Ukraine invasion. China also has similar reasons to distrust the US and hold the US dollar as a reserve, as it can be risky. 

Other factors

But not every country has the same reasons as China and Russia to distrust the US dollar. 

• The US accounts for just over a 10th of the global trade, which is disproportionately less compared to the world's reliance on the US dollar. 
• The US government has accumulated a staggering amount of debt which some say has left markets vulnerable to financial disruptions. 
• The US national debt stands at $31.46 trillion. 

• It also depends on the demand for US dollars over the world. Following a series of bank collapses in the US earlier this year, the demand for the US dollar has decreased. 
• All these collapsed banks have one thing in common - interest on US Treasury bonds. 
• Moreover, the dollar's dominance over other countries is also translated into the debt they owe in dollars. The debt they owe can fluctuate based on the rise and fall of the exchange rate, meaning, if the US government makes economic decisions that affect the dollar, it would in turn affect the economies of other countries as well.  

This TikToker has a "creative" way to simplify dedollarisation. It's a plus if you have watched Mean Girls (yes, you read that right!):

The f did I just watch? 😂 Mean Girls meets dedollarisation pic.twitter.com/wI554dhiFb

— Bia (@BeatrizGietner) April 13, 2023

The discussion on dedollarisation has been going on for at least a decade. However, it is easier said than done, as much of it relies on trust. Most of the trade pacts in non-US dollar currencies have been short-lived. The question also remains of which currency can replace the US dollar. Will it be the Chinese Yuan, the Japanese Yen, or the Euro?