Is the threat of De-Dollarization?
How the present dollar dominance help US state and citizenry?
Why the De-Dollarization would take more time than people think?
Ultimate outcome of De-Dollarization?
Critical Analysis
1) Introduction: By one estimate, the dollar is a part of 88% of all international transactions. Most of the countries across the globe have dollar as their reserve currency as it is the sole currency to be used in international transactions. However, with increasing use of US sanction regime and other geopolitical reasons, dollar dominance is grappling with real-time realty checks..
2) De-Dollarization refers to the concept that the economies are moving away from dollar dominance, atleast in their transactions with the like-minded economies. The most prominent example is the recent pledge of BRICS member countries to get rid of shackles of dollar dominance. Meanwhile, other countries like Argentina, Saudi Arabia, and several African countries also harbor such aspirations which is evident in their policy decisions. Other currencies like Euro and Chinese Yaun has the potential to sideline the dollar atleast in long term. So threat of De-Dollarization is real and the US is putting in extra efforts to halt the tide of De-Dollarization.
3) How dollar dominance help US state and citizenry:US Dollar comprises almost 90% of International transactions. Some people fear this dominance cannot last, while others question whether it should: Doesn’t a stronger dollar hurt US exports, and thus US workers?
The good news, for Americans at least, is that dollar hegemony is beneficial for the US, its government and most of its citizens.
When Americans trade dollars for foreign goods and services, that measures as a US trade deficit, but it can also be seen as America exporting dollars and “dollar services.” The US brands and markets its dollar, just as Zara or the Gap brands and markets clothing. So the much-vaunted US trade deficit can be reconceptualized as a form of barter: One service (dollar stability) is being exchanged for another good or service (e.g., whatever America buys from China). In essence, branding and selling dollars so effectively — also known as “buying things” — enables US consumers to have a higher standard of living.
4) Why it will take yuan and euro decades to overcome US dollars: With the dollar estimated at 88% of all international transactions, the euro at 31% is only a modest competitor (since a transaction may involve two currencies, the total may exceed 100%). The euro, unlike the dollar, will never be tied to a single national government, and the European Union does not come close to the military might of the US.
The yuan is estimated at only 7% of that total of international transactions, and China seems unwilling to open up its capital markets, as that could lead to rapid capital outflows and possibly a financial crisis. But without open capital markets, the yuan is not a strong contender for a global reserve currency.
5) Ultimate outcome of De-Dollarization: Sooner dollar dominance will gave way to other currencies like Yaun and Euro. Reason of Yaun occupying space ceded by dollar is simple. For example, China is the largest trade partner with Middle East, ASEAN, Africa, and many other regions and countries. So it has the potential to twist arm it’s trade partners to use Yaun in place of dollar; resultantly, outreach of Yaun would increase at exponential rate. Moreover, chinese market is the largest market in terms of production so countries, businesses and firms need to have good terms with Beijing to remain competitive in the cutt throat competition. Hence, in long term Yaun has the potential to offset global dominance of dollar..
In nutshell, it is suffice to say that US dollar although the single most-used currency in international transactions presently, is grappling with threats presented by Yaun and Euro. In near future, it is virtually impossible to stall the dominance of US dollar but in long term maintaining US dollar hegemony would be a herculean task in the face of formidable threat of Yaun, Bitcoin and other digital currencies.