<ul><li>The reign of the <keyword id="35208" type="General" weightage="20" keywordseo="dollar" source="Orion">dollar</keyword> as the world’s reserve currency is under increasing scrutiny, as countries prepare ground to reduce their reliance on the whims of US’ monetary and foreign policy.</li><li>Amongst the countries which have moved against the dollar in some capacity include <keyword id="6358826" type="General" weightage="80" keywordseo="russia" source="Orion">Russia</keyword>, China, India, US ally Saudi Arabia and Brazil.</li><li>Economists say the dollar’s influence will slowly but steadily reduce, but its replacement might still take a while to arrive on the scene.</li></ul>The world is going through an upheaval on multiple fronts, many of which lead to the US’ unchecked unipolar supremacy being challenged and by extension, the dollar’s primacy as the world’s reserve currency. The dollar’s reserve currency status means that there is a virtually endless demand for it, allowing the US and US companies to borrow money internationally. World trade is also undertaken overwhelmingly in dollars – according to an estimate by the Bank for International Settlements, dollars accounted for 88% of the world’s total transactions in 2022. This means that countries all over the world need to hold the dollar to be able to buy from international markets. This creates the demand for dollars and the cycle continues. Dollar’s reserve currency status also gives the US immense economic and political clout, helping it remain the superpower. <cmsannotation type="cmsannotation" annotationid="De-dollarisation increasingly attractive" comment="subhead" text="De-dollarisation increasingly attractive">De-dollarisation increasingly attractive</cmsannotation> The use of dollar’s reserve currency status by the US to wage an economic war via sanctions and its monetary policy decisions which have led to the exportation of inflation to other countries, among other things — have led to increasing calls for de-dollarisation in several countries around the world, most of which aren’t allied with the US. “By weaponizing dollar dominance and permitting expanding mandates to disorient US monetary policy, the dollar’s fate as the lingua franca of world commerce over the long haul may already be sealed,” said economist <keyword id="17147912" type="General" weightage="80" keywordseo="peter-c-earle" source="Orion">Peter C Earle</keyword> in a piece for American Institute for Economic Research. The list of countries which have made moves against the dollar include China, Russia and Iran – while the latter two have done this due to sanctions imposed on the US and its allies, China’s moves are more nuanced and are motivated by its desire to dethrone the US as the world’s superpower. Other countries which have joined the bandwagon recently are India, Saudi Arabia, Brazil and even Malaysia. India has kicked off its efforts in earnest with its new foreign trade policy that went into effect in April this year. As a result, 18 countries, including the UK, Germany, Singapore and others have agreed to do trade settlements in rupee. China is in talks with Saudi Arabia to use yuan instead of dollar for its crude oil purchases. Brazil’s president Lula has urged BRICS countries – a group that includes Brazil, Russia, India, China and South Africa – to trade in local currencies and stop using dollars. “Why can’t an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries?” Lula remarked on Thursday last week during a visit to the Shanghai-based New Development Bank, challenging the dollar’s hegemony and calling its role in the global economy ‘outsized’. China has already kicked this off, settling its first trade of liquified natural gas (LNG) in yuan with France’ TotalEnergies. Post Russia being shut out from the SWIFT payment system, yuan has replaced dollar as the most traded currency. <cmsannotation type="cmsannotation" annotationid="It will be a long journey" comment="subhead" text="It will be a long journey">It will be a long journey</cmsannotation> To be sure, though, talks of de-dollarisation have been going on for decades. The desire for a stable, politically-neutral currency has always been present, but it has never materialized and the dollar has continued to be the reserve currency of the world despite several hiccups during its reign so far. “So long as the political will to moor US fiscal and monetary policies to those consistent with the constitution of sound money remain an inconversable matter, de-dollarization will proceed. And slower or more quickly, the dollar will lose ground abroad,” Earle added. It’s completing that journey which could take a long, long time, thanks to the pervasiveness of the dollar in global trade and the network effects associated with it. While 88% of international transactions were dollar-denominated, only 31% were in the euro, and an even less 7% in yuan. According to an analysis by <keyword id="6357341" type="General" weightage="80" keywordseo="deutsche-bank" source="Orion">Deutsche Bank</keyword>, the dollar is facing a challenge to its status on multiple fronts. This includes the use of local currencies between two countries as a medium of exchange. This has by far the biggest weapon in the arsenal of countries looking to reduce their reliance on the dollar. Another critical measure of reducing dependence on dollars is private sector flows – the euro is once again the closest competitor to the dollar, accounting for 31% of the total flows at the end of 2022, while the dollar held a share of 47%. However, the dollar's share has fallen by 5 percentage points over the past 20 years. All said and done, though, the consensus amongst economists is that de-dollarisation will be a long journey, and fraught with uncertainties. “The <keyword id="54123" type="General" weightage="80" keywordseo="usd" source="Orion">USD</keyword> is likely to remain the dominant reserve currency, probably for decades to come,” said Deutsche Bank analyst Alan Ruskin. Whether an existing currency dethrones the dollar or a new reserve currency is created – sometimes referred to as <keyword id="1965246" type="General" weightage="80" keywordseo="bretton-woods-iii" source="Orion">Bretton Woods III</keyword> – the dollar remains the King for the time being. The clock is ticking, though. 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Is the Dollar dying? Its reserve currency status may be at risk, but it isn’t time to die

<ul class="summary-list"><li>The emergence of new regional payment systems likely won't spur de-dollarization, OMFIF said.</li><li>So far, their infrastructure is weak and they are plagued by implementation challenges.</li></ul>De-dollarization risks are on the rise, but rising alternative transaction networks won't be the basis of a major decline in the use of the US currency, the Official Monetary and Financial Institutions Forum said.According to <a href="https://www.omfif.org/2024/05/will-growth-in-regional-payment-systems-spur-de-dollarisation/" target="_blank" rel="noopener">commentary</a> published Thursday, obstacles are already afflicting new regional payment systems, even as de-dollarization rhetoric creeps up."For instance, regional payments continue to suffer from weak implementation, infrastructure and complex geopolitical obstacles among participatory economies," senior economist Julian Jacobs wrote. "This is why the emergence of the technological capacity to drive de-dollarisation does not necessarily mean de-dollarisation will occur."Such systems include tech initiatives such as mBridge, a cross-border platform built around emerging central bank digital currencies. Backing it are monetary authorities in China, Hong Kong, the United Arab Emirates, and Thailand.Meanwhile, efforts to assemble regional financial systems have delivered the Pan-African Payment and Settlement System, OMFIF cited as one example. This infrastructure delivers payments in local currencies, in a step away from the greenback.Still, none of these have been enough to shake how entrenched the dollar remains in world finance, OMFIF said. Not only does it account for 58% of global reserves, it tops all other currencies for its share of global payments. As of April, it accounted for 47.31%, according to the latest data from the <a href="https://www.swift.com/our-solutions/compliance-and-shared-services/business-intelligence/renminbi/rmb-tracker/rmb-tracker-document-centre" target="_blank" rel="noopener">SWIFT financial system</a>. While countries may want to wean off of the dollar — especially in light of how the greenback was used to punish Russia over its invasion of Ukraine in 2022 — a major migration to regional payment systems would require economies to tackle a whole new set of issues, OMFIF said. If de-dollarization is a rising threat, it's instead coming from Western competition, the think tank said. That's as the euro has come to serve as the world's second top reserve currency and offers high liquidity and quality infrastructure.To be sure, those worried over the greenback's status have chiefly focused on China's yuan, as Beijing pursues policies to bolster its international standing. For instance, it's even launched its own payments infrastructure, the Cross-border Interbank Payment System.But China's efforts to create an alternative system are a defensive ploy for now, OMFIF wrote in a separate <a href="https://www.omfif.org/2024/05/china-is-defending-against-the-dollars-dominance/" target="_blank" rel="noopener">note</a> from May. "The goal is to minimise the negative consequences of the West's comprehensive sanctions against China in extreme geopolitical scenarios such as a military conflict over Taiwan," Council on Foreign Relations fellow Zongyuan Zoe Liu wrote. "Expanding the use of the renminbi in trade is less challenging than increasing its status as an international reserve currency."

De-dollarized payment systems are cropping up. Here's why they're unlikely to dent greenback dominance.

<ul><li>Experts say some short-term correction from the all-time high in the next few months should offer an entry point. </li><li>Apart from <keyword id="18712" type="General" weightage="20" keywordseo="gold" source="Orion">gold</keyword>’s safe haven status, de-dollarisation is also adding to its lustre. </li><li>Investors expected to hold reliable safeguards like gold within their investment portfolios in 2024.</li></ul>Optimism for early Fed rate cuts in 2024 weakened the dollar and bonds, sending gold prices soaring to their highest point in almost three weeks recently. In fact, a <keyword id="113718" type="General" weightage="20" keywordseo="world-gold-council" source="Orion">World Gold Council</keyword> report expects one in four central banks to increase their gold reserve holdings which mean more demand. This and conditions in the Middle East have analysts expecting an upside in 2024 with prices moving towards $2,200. Market watchers expect the yellow metal to at least hold around $2,000 per ounce in the first part of next year. If the interest rate rate cycle has peaked, that should keep gold well supported. However, according to Ghazal Jain, fund manager of alternative investments at Quantum AMC, <keyword id="6377314" type="General" weightage="20" keywordseo="rate-cut" source="Orion">rate cut</keyword> expectations and the up move in gold is vulnerable to a reversal in the short term in case of a higher for longer Fed stance or hawkish Fed commentary to push back against market expectations and loosening of financial conditions. How gold prices may pan out According to the World Gold Council, as we look forward to 2024, investors will likely see one of three scenarios. The general expectation among market experts is for ‘soft landing’ in the US, a scenario historically not favourable for gold, leading to flat or slightly negative outcomes. However, each economic cycle differs. Presently, increased tensions on the world stage during important election years for major economies, along with ongoing central bank purchases, might offer added support to gold. Moreover, the certainty of the Federal Reserve successfully guiding the US economy to a safe landing with interest rates exceeding five percent remains uncertain. The possibility of a global economic downturn still looms, prompting investors to consider holding reliable safeguards like gold within their investment portfolios. <h3 style="line-height:1.38;background-color:#ffffff;margin-top:0pt;margin-bottom:0pt;padding:14pt 0pt 4pt 0pt;">The global economy faces three likely scenarios in 2024</h3> <table style="border-width: initial; border-style: none;" class="redcator-table-advance"><colgroup></colgroup><col /><col /><col /><col /><tbody><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Economic Scenario </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Soft Landing </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Hard Landing </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">No Landing </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Probability </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">45%-65% </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">25%-55% </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">5%-10% </td></tr><tr><td rowspan="4" style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Drivers of gold </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Opportunity Cost </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Opportunity Cost </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Opportunity Cost </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Economic expansion </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Economic expansion </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Economic expansion </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Risk and uncertainty </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Risk and uncertainty </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Risk and uncertainty </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Momentum </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Momentum </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Momentum </td></tr><tr><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Implied gold performance </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Flat with upside potential </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Notably higher (above record) </td><td style="border-left:solid #000000 0.68181825pt;border-right:solid #000000 0.68181825pt;border-bottom:solid #000000 0.68181825pt;border-top:solid #000000 0.68181825pt;vertical-align:top;padding:0pt 5pt 0pt 5pt;overflow:hidden;overflow-wrap:break-word;">Flat with initial downside pressure </td></tr></tbody><tbody></tbody></table> Source: World Gold Council Most experts expect some short-term correction from the all-time high to the tune of 5-7% in the next few months – offering a brief but decisive entry point. “After the first quarter of 2024, we might see another positive cycle after interest rate cuts,” says Jateen Trivedi, VP and research analyst at LKP Securities tells Business Insider India.. Jain also says that the outlook is positive even if there could be some volatility in the next few months. The China factor There is another factor at play that can offer long-term support to prices is the aggressive central bank purchases of gold. Apart from the yellow metal’s safe haven status, de-dollarization is also adding to its lustre. “One of the main drivers of gold demand is China, India, Russia, and Turkey, which buy record amounts of gold to protect their economy from dollar fluctuations and increase their financial independence,” says a report by Kedia Advisory. China, which is the biggest global buyer of oil, has been in talks with Saudi Arabia to sell them oil in yuan since 2022. “It is possible that the Saudis may have asked for the yuan to be backed by gold, to bolster its lack of free convertibility. This could explain why the Chinese central bank has been buying more and more gold each year,” explains Jamal Mecklai, CEO of Mecklai Financial in his note. China has already announced its goal of raising gold holdings to 5%, and its share at the end of Q2 2023 is at 3.84%. “The possibility that China may see fit to push the share of its gold holdings even higher than 5%, we may well be seeing just the start of a real bull market in gold,” adds Mecklai. We have seen a very bullish 2023, and at this point in time, it’s very possible that gold may continue to shine in 2024.

The yellow metal will continue to sparkle in the new year

<ul class="summary-list"><li>De-dollarization could lead to a vicious cycle of economic destruction, according to an Australian economic think tank.</li><li>That's because waning use of the dollar could bring on hyperinflation, researcher Michael Roach said.</li></ul>The use of the US dollar as a reserve currency is under threat — and the greenback is headed for a vicious cycle that will further erode its dominance, according to the Australian think tank the <a href="https://www.lowyinstitute.org/" target="_blank" rel="noopener">Lowy Institute</a>.That's because the declining use of the dollar could lead to hyperinflation, which would, in turn, lead to higher interest rates as central banks combat high prices. And those rate hikes will weigh on asset prices like stocks, researcher Michael Roach said in a recent <a href="https://www.lowyinstitute.org/the-interpreter/de-dollarisation-shifting-power-between-us-brics" target="_blank" rel="noopener">op-ed</a> for The Interpreter, a publication run by the think tank.This outlook is furthered by speculation that <a href="https://markets.businessinsider.com/news/stocks/dedollarization-greenback-will-die-brics-nations-gold-backed-crypto-kioysaki-2023-7">BRICS nations could potentially launch a rival currency</a> to the US dollar, backed by gold, Roach said, though <a href="https://markets.businessinsider.com/news/currencies/de-dollarization-dollar-dominance-currencies-brics-china-russia-india-putin-2023-7">such plans</a> have been disputed. Nations like China, Russia, and Saudi Arabia have also started to shift away from use of the dollar in global trade, which could further weaken the dollar's dominance.Meanwhile, the US Dollar Index, which weighs the greenback against a basket of other currencies, has declined 4% over the last year, signaling the dollar's decline in purchasing power. Interest rates in the economy are also at their highest level since 2001 as the Fed continues to monitor high inflation."The trend of de-dollarisation is occurring — but it is not something unique," Roach said, pointing to previous dominant currencies that were later replaced, like the British sterling. "There will inevitably be a shift in the world order, and it may well be the BRICS' time."But some experts have disputed the <a href="https://markets.businessinsider.com/news/currencies/dollar-dominance-dedollarization-paul-krugman-nyt-us-economy-china-yuan-2023-7">de-dollarization trend</a>, making the case that the phenomenon more based in fear than reality. Though use of the dollar in global transactions and central bank reserves has declined in recent years, the greenback still by far beats use of any other currency, economic data shows.The dollar accounted for at least <a href="https://www.bis.org/statistics/rpfx22.htm" target="_blank" rel="noopener">one side in 6.6 million transactions in April 2022</a>, according to Bank of International Settlements data, meaning it has a role in 88% of all global trade. Meanwhile, dollar reserves accounted for <a href="https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4" target="_blank" rel="noopener">54% of all foreign exchange reserves</a> in the fourth quarter of 2022, according to the International Monetary Fund.

You Searched For "dedollarisation" and got 4 results

Is the Dollar dying? Its reserve currency status may be at risk, but it isn’t time to die

Rounak Jain

De-dollarized payment systems are cropping up. Here's why they're unlikely to dent greenback dominance.

Filip De Mott

The yellow metal will continue to sparkle in the new year

BI India Bureau

De-dollarization will be a vicious cycle as hyperinflation leads to higher rates that will further erode the greenback's power, think tank says

Jennifer Sor