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De Dollarization

De-dollarization refers to the process of decreasing reliance on the US dollar in international commerce and finance. Since World War II, the dollar has dominated global trade and finance, but some nations are now seeking to lessen this dependence. Drivers of de-dollarization include the rise of countries like China challenging US dominance, as well as digital currencies providing an alternative to the dollar. While the trend of de-dollarization will likely continue, its impact is difficult to predict in the next 5-10 years due to uncertainties around geopolitical tensions and economic stability.

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72 views

De Dollarization

De-dollarization refers to the process of decreasing reliance on the US dollar in international commerce and finance. Since World War II, the dollar has dominated global trade and finance, but some nations are now seeking to lessen this dependence. Drivers of de-dollarization include the rise of countries like China challenging US dominance, as well as digital currencies providing an alternative to the dollar. While the trend of de-dollarization will likely continue, its impact is difficult to predict in the next 5-10 years due to uncertainties around geopolitical tensions and economic stability.

Uploaded by

CJ Pagulayan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PAGULAYAN, Chris John A.

196033
LAS 122 - LT

De-Dollarization

De-dollarization is a term that has gained popularity in recent years as more


nations and institutions attempt to minimise their reliance on the US dollar in
international commerce and finance.

The process of decreasing or removing the dominance of the US dollar in


international trade and finance is referred to as de-dollarization. Since the end of
World War II, the US dollar has been the world's main currency, with many countries
retaining huge reserves of US dollars to ease trade and as a store of value.
However, there has been a growing tendency in recent years of nations and
corporations attempting to lessen their reliance on the US dollar and exercise greater
authority over their own economy. Various geopolitical and economic variables, such
as China's growth as a global economic power and the growing usage of digital
currencies, have driven this trend.

The world was "dollarized" following globe War II, when the United States
emerged as the world's main economic and military force. The United States dollar
became the favoured currency for international commerce and finance, and
governments began to accumulate substantial reserves of US dollars to simplify
transactions and serve as a store of value. This arrangement, known as the Bretton
Woods system, established the US dollar as the global reserve currency and linked
the value of other currencies to it. The system collapsed in the 1970s, giving birth to
floating exchange rates, but the US dollar's dominance in global banking has
remained substantially intact.

The prime movers of de-dollarization are countries and entities that are
looking to reduce their dependence on the US dollar and assert greater control over
their own economies. This includes countries like China and Russia, which are
seeking to challenge the dominance of the US in global finance, as well as other
emerging economies (India and Brazil) that are looking to diversify their reserve
holdings. There are several reasons why countries and entities are seeking to
reduce their dependence on the US dollar:

a) Geopolitical considerations: The dominance of the US dollar gives the US


significant power and influence in global affairs, and some countries are seeking to
reduce this power imbalance by reducing their dependence on the US dollar. This is
particularly true for countries like China and Russia, which are seeking to challenge
US dominance in global affairs.

b) Economic considerations: The US dollar's dominance in global finance means that


the US has significant control over the global economy, and some countries are
seeking to reduce this dependence to protect themselves from economic shocks or
to assert greater control over their own economies.

c) Technological advancements: The rise of digital currencies like Bitcoin has


contributed to de-dollarization efforts, as these currencies offer an alternative to
traditional fiat currencies like the US dollar.

While de-dollarization is a trend that is likely to continue in the long term, it is


difficult to predict whether it will become truly eminent in the next 5-10 years. There
are several factors that could influence the pace and direction of de-dollarization
efforts, including:

a) Geopolitical tensions: The ongoing tensions between the US and countries like
China and Russia could accelerate de-dollarization efforts, as these countries seek
to reduce their dependence on the US dollar to protect themselves from potential US
sanctions or other actions.

b) Economic instability: Economic shocks or instability could also accelerate


de-dollarization efforts, as countries seek to protect themselves from
Sources:

“Bretton Woods Agreement.” Corporate Finance Institute, March 14, 2023.


https://corporatefinanceinstitute.com/resources/economics/bretton-woods-agre
ement/.

“De-Dollarization Efforts in China and Russia - Congress.” Accessed April 26,


2023. https://crsreports.congress.gov/product/pdf/IF/IF11885.

Nucleus_AI. “De-Dollarization and Its Impact on the Global Economy and


Startups.” YourStory.com, March 30, 2023.
https://yourstory.com/2023/03/de-dollarization-impact-global-economy-startups.

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