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Here’s a closer look at 12 countries that are shifting away from the US dollar:
1. China
- Change: China has been the loudest advocate for de-dollarization. It has progressively increasingly used its own currency, the Renminbi, to facilitate international trade. It can now settle trade in its currency since it established the China International Payment System, which is also the payment system that SWIFT rival.
- Impact: China has also made bilateral agreements with countries like Russia, Brazil, and Pakistan to trade in local currencies, thereby avoiding the use of the US dollar.
2. Russia
- Shift: Russia has been trying to downsize its usage of US dollar, especially since the West imposed sanctions after it annexed Crimea in 2014. Russia has gone on to cut its treasuries of US dramatically while diversifying foreign reserves in the investment gold and other similar investments.
- Impact: Russia has largely traded with countries such as China, India, and Iran in Ruble in the recent past. This also supports the cause of the BRICS nations (Brazil, Russia, India, China, South Africa) finding ways to move away from dollar dependence.
3. India
- Shift: India has tried to make the Rupee a popular currency in its trade agreements, especially with its neighbors. India is also now looking into using local currencies in trading with Russia and Iran.
- Impact: India is using the Rupee in international trade more and more as a means of increasing economic sovereignty and not relying as much on the dollar.
4. Iran
- Shift: Imposition of sanctions by the US has compelled Iran to decrease its reliance on the US dollar. Iran has been aggressively encouraging the use of Rials in trade with China, Russia, and Turkey.
- Impact: Iran has also been resorting to cryptocurrencies and barter systems to evade the American financial system.
5. Turkey
- Shift: During the last few years, Turkey has been actively working towards reducing the dependence on US dollar while trading. The government of Turkey has been encouraging its use of Lira for the purpose of trading with other neighboring countries and other international traders.
- Impact: Turkey has had agreements with countries like Iran, Russia, and China whereby they will trade in local currencies instead of the dollar.
6. Brazil
- Shift: Brazil is actually working to decrease its use of the US dollar and increase its use of the Real when trading with nations like China, Argentina, or any other BRICS country.
- Impact: The impact was to set up currency swap agreements with other countries by the Brazilian government to popularize the use of local currencies in international transactions.
7. Saudi Arabia
- Shift: While Saudi Arabia has always been tightly linked to the US dollar, partly because of oil sales, there is a talk regarding diversifying its economy and getting other currencies for international trade. Saudi Arabia has started doing business with countries like China so that it can sell oil in Renminbi instead of in the dollar.
- Impact: This change may lower the dependency of the kingdom on the dollar for global oil trade and thus can affect the hegemony of the dollar in energy markets.
8. Venezuela
- Shift: Because of US sanctions, Venezuela shifted from being a dollar-dependent economy to using domestic transactions through the Bolívar and trading with other countries such as China, Russia, and Iran in their local currencies.
- Impact: Venezuela has also turned towards the use of cryptocurrency, such as the Petro, as a way out of financial sanctions.
9. Malaysia
- Transition: To promote the domestic currency, Malaysia encouraged the use of Ringgit in its trade with countries like China, Indonesia, and India.
- Impact: Malaysia wants to become less dependent economically. It has also entered into regional agreements such as the ASEAN Trade Agreement which must reduce its dollar dependency.
10. South Africa
- Change: Because it is a member of the BRICS group of countries, South Africa wanted its use of the US dollar minimized, and it therefore sought the use of its local currency, Rand for trade within the BRICS club.
- Effect: South Africa also entered into agreements with China and other countries about engaging in trade in local currencies.
11. Argentina
- Shift: Following economic instability and hyperinflation, Argentina has seen an increased use of Pesos in trade with nations such as Brazil and China.
- Impact: Argentina’s efforts are part of a move to handle its financial scenario by decreasing reliance on foreign currency, including the US dollar.
12. Egypt
- Shift: Egypt has expressed an interest in reducing its dependence on the US dollar, especially through regional trade agreements with neighboring African and Middle Eastern countries.
- Impact: Egypt has been in discussion with countries such as China to trade in local currencies and reduce its dependence on the dollar.
Conclusion
It is not a universal movement, but it is becoming more common among countries that want to be in charge of their own economic destiny. They have the aspiration to create an alternative to the dollar, increase their security from US sanctions, and diversify reserves. While the US dollar continues to be the leading reserve currency in the world, these tendencies of de-dollarization call for a rebalancing in the global financial system that we might see in the upcoming decades. As challenges develop from China and other growing powers to the US dollar, we can expect that some nations will continue efforts aimed at discovering and implementing newly introduced currencies for international trade.
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Frequently Asked Questions
Countries are moving away from the US dollar for many reasons?
Countries are diversifying their trade and financial systems, reducing the reliance on the US dollar, due to geopolitical considerations, economic sanctions, or a desire to have control over their monetary policy.
Countries actively reducing dependence on US dollar?
China, Russia, India, Iran, Brazil, Turkey, Saudi Arabia, Venezuela, Malaysia, South Africa, Argentina, and Egypt.
