Some of the world’s major economies, tired of the dollar, which has recently become a weapon in the global economy, are looking for ways to circumvent the US currency.
Due to the problems created by the strong dollar, many countries began to look for new ways to de-dollarize. In addition, some companies also borrowed in local currencies in an unprecedented manner due to the stronger dollar.
With the US sanctions and the strengthening of the dollar, many countries began to experience economic problems due to the dominance of this currency. The dollar has risen 7 percent against major currencies this year, according to the Bloomberg dollar index.
The rise in the dollar, on the other hand, led to higher food purchase prices, worsening debt repayment burdens and deepening poverty for Asian countries.
The US’ use of the dollar as a political tool also put extra pressure on Asian economies. Without an alternative payment system, these countries risked losing their trade with major partners.
According to the information provided by Bloomberg, while Asian officials wanted to maintain bilateral relations with both China and the United States, they had to look for other ways due to the penalties imposed by the United States on Russia.
The use of the dollar’s absolute power to impose sanctions on Russia under Joe Biden and new technological innovations also encouraged many countries to undermine the dollar’s international hegemony.
The Myanmar government also said the dollar was used “to bully small nations”. Many Southeast Asian countries also cited the sanctions as a reason to trade more in their local currencies. Also, Moscow tried to persuade India to the alternative system.
Although the dollar’s reign as the main medium of exchange is not expected to fade in the short term, many countries have begun to explore payment mechanisms that bypass the dollar and the SWIFT network that underpins the global financial system.
Plans already underway in Russia and China, which want to use their own currencies for international payments, including the use of blockchain technologies, accelerated after the Ukraine war. For example, Russia began to charge fees in rubles for its energy supply.
Soon after, countries such as Bangladesh, Kazakhstan, and Laos also stepped up negotiations with China to increase their use of the yuan. India has started talking louder about the internationalization of the rupee, providing a bilateral payment mechanism with the United Arab Emirates this month.
The main driver of these plans has been the US and Europe’s move to exclude Russia from the global messaging system called SWIFT. Described by the French as a ‘financial nuclear weapon’, this action has swept most major Russian banks away from a network of transactions worth tens of billions of dollars a day. Thus, Russian banks focused on their own systems.
The US sanctions against Russia raised concerns in other countries as well. These countries have raised concerns that the dollar may become a permanent political tool. This concern has risen especially in China. Also, India has started to develop a payment system similar to SWIFT.
On the other hand, dollar-denominated bond sales of non-financial companies fell to a record low, accounting for 37 percent of the global total in 2022. In the last ten years, this rate was more than 50.
“The Biden administration made a mistake in weaponizing the dollar and the global payments system,” said John Mauldin, an investment strategist with more than three decades of experience at the investment firm Wave Advisors. “This could cause investors and nations outside the United States to diversify their assets outside of the dollar.”
sozcu.com.tr