Washington alone is to blame for the growing de-dollarization trend

Illustration: Chen Xia/Global Times

Illustration: Chen Xia/Global Times

After the outbreak of the conflict between Russia and Ukraine earlier this year, Western governments led by the United States imposed a series of sweeping financial sanctions on Moscow, including freezing its foreign exchange reserves. The idea that the US could move to seize the assets of anyone who refuses to obey Washington’s dictates is truly unnerving, which is now prompting more countries to diversify their reserve assets away from US dollars.

There is another important factor driving more countries to pursue a faster pace of de-dollarization. The US Federal Reserve, run by selfishness, only cares about the interests of US investors and Wall Street, and in recent years the US central bank has frequently failed in its monetary policy, creating cyclical liquidity ups and downs and inflation crises, such as the current wave of more than 8.5 percent inflation not seen in 40 years.

Steep and relentless increases in US interest rates by the Federal Reserve have inevitably caused an exodus of capital from developing countries, often leading to defaults on foreign debt and the implosion of many emerging market economies. In recent decades, the world has witnessed many such economies, including Mexico, Argentina, Thailand, South Korea, Greece, Turkey, and Sri Lanka, which have faced severe economic problems due to the global financial system focused on the dollar.

In recent years, with the increasing use of the dollar as a weapon and Washington’s inclination to use the dollar to sanction so-called “rogue” countries in the eyes of the United States, many countries in the world have woken up and begun to experience trading in their own national currencies and using payment and settlement systems other than the SWIFT (Society for Worldwide Interbank Financial Telecommunications) code, which is largely at the disposal of the US government.

Since the 2008-09 global financial crisis that originated in the US and quickly turned into a global catastrophe, triggering an economic tsunami that hit all countries and regions, more governments and central banks are exploring ways to break with settlement and payment in dollars. However, they have largely failed to make any progress in chipping away at the dollar’s global dominance.

But this time, Russia wants to do something different, as Moscow is determined to launch a counteroffensive against Western sanctions and the dollar-centric global financial system.

Angered by unprecedented Western financial and economic sanctions, Moscow has asked all “hostile countries” imposing sanctions on it to pay for their fuel purchases in Russian rubles. The bold move, Russian economists say, immediately helped stabilize the value of the ruble and significantly defused the negative impact of Western sanctions. In addition to crude oil and natural gas, some of the economists have suggested that Moscow expand the requirement for importers of grains, chemical fertilizers and other high-value products from Russia to transact in rubles, rather than dollars or euros.

Russia’s highly bold and innovative move to stabilize its own currency in times of trouble has greatly incentivized other governments to follow suit. Now, there are media reports that the BRICS countries are trying to discuss deepening trade in their own currencies. For example, the R5 initiative has been proposed, which aims to use the BRICS’ respective national currencies: ruble (Russia), rupee (India), rand (South Africa), real (Brazil) and renminbi (China), to help settle trade between them.

Therefore, the unprecedented Western sanctions imposed on Russia, including restrictions on its central bank, now increasingly threaten to dilute the dominance of the US dollar and may result in a more fragmented international monetary system. To date, Moscow has almost completely sold off its US bonds, and lately there are growing signs that the world’s other major economies are beginning to dump US Treasuries and other US dollar-denominated assets.

The importance of Moscow’s de-dollarization campaign is that it is the most radical of de-dollarization measures taken by a sovereign nation. Russia has not only implemented de-dollarization measures nationwide, but is also taking some tough steps to test its own financial information exchange system.

In reality, Washington has only itself to blame. In recent years, US politicians, nervous about the economic boom in China and other emerging market economies, have deliberately created economic decoupling, technology lock-ins, and industrial chain disruptions to thwart the economic growth of their competitors. It is natural for other countries to take decisive countermeasures, including dumping dollar assets and exiting the US stock market.

And, as the US has been aggressively using deficit financing to combat the economic ravages of the COVID-19 pandemic, the sustainability of its debt could also be called into question.

The share of US dollar assets among global central banks’ forex reserves fell to 59 percent in the fourth quarter of 2020, a 25-year low, driven by central bank actions and exchange rate fluctuations. , reported the IMF last May. The share fell further to 58.88 percent in the first quarter of 2022, IMF data showed.

Since the US is stubbornly tied to hampering and damaging other economies, its competitors have no obligation to adopt the outdated Bretton Woods system and help the US maintain dollar hegemony. The dominance of the dollar for decades has put the United States in a strong position to dictate the terms of world trade and finance for the past 70 years. It is time for a change.

The author is editor of the Global Times. bizopinion@globaltimes.com.cn

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