De-dollarization is no longer a matter of if, but when — and is a national security concern, says International Crisis Group cochair

• De-dollarization is no longer a matter of if, but when, said International Crisis Group cochair Frank Giustra.
• A sudden drop in dollar demand could lead to hyperinflation and a debt crisis, he said.

De-dollarization now looks inevitable and threatens to become a national security concern, according to International Crisis Group co-chair Frank Giustra.

In commentary published in Responsible Statecraft, he said the idea that the dollar could lose its dominance was unthinkable in most of the developed world until the US and its allies froze Russia's currency reserves and shut it out from the SWIFT system after Moscow launched its war on Ukraine.

That set off growing resistance to the dollar, Giustra said, with a number of countries installing non-dollar trade agreements while a BRICS plan for its own currency has re-emerged.

"Financial systems are built on trust and, if they are weaponized, they lose the trust necessary to retain their dominance," he said.

Viewing the Russian sanctions as a cautionary tale, central banks have begun reducing their dollar reserves, while accumulating gold.

A drop in the dollar's value may also be of interest to the rest of the world, as most sovereign debt is held in the US currency. And given the greenback's current levels, this makes debt hard to manage, Giustra added.

At the same time, an expensive dollar elevates commodity prices, effectively forcing developing nations to import US inflation.

"Despite America's likely opposition, de-dollarization will persist, as most of the non-Western world wants a trading system that does not make them vulnerable to dollar weaponization or hegemony. It's no longer a question of if, but when," he said.

But a sudden drop in dollar demand could provoke a domestic inflationary surge, even risking hyperinflation.

That would spark a a debt and money-printing cycle that could rupture the US social fabric, he warned.

"In short, any U.S. administration would ultimately consider any such de-dollarization moves to be matters of national security," Giustra said.

To avoid this, the US should be open to any dialogue about the formation of a new monetary system. A new global currency regime could be backed by gold or other commodities, though he acknowledged the US could find it politically unpalatable.

"A multipolar monetary system might provide a more equitable playing field to poorer countries and just maybe give the U.S. and the world longer-term economic and political stability, Giustra wrote. "The likely outcome of this would still be quite chaotic and involve a drop in the standard of living for Americans."

Meanwhile, other commentators have dismissed the threat of de-dollarization, saying the dollar's strength would be difficult to replicate and replace.