Report by: YemenEco
The past few years especially with the outbreak of the Russian-Ukrainian war, have witnessed a remarkable rise in the voices calling for freedom from the dominance of the US dollar on the global economy, and those calls may be accompanied by striking trends by some countries to search for alternatives , although the ratios of the US dollar reserve in banks show a gradual decrease corresponding to a slow rise of other currencies, and which represents a clear indication that the matter is already achieved, because experts speak with great caution about the possibility of removing the dollar from its throne, but is caution related only to estimating the time necessary to achieve the possibility, and not to its impossibility.
The issue of respecting the economic sovereignty of countries was one of the most important factors that contributed to accepting American economic hegemony, as it set some red lines for itself that it did not cross, which achieved a kind of stability and economic reassurance even among Washington’s opponents and prompted them to invest, for example, in American bonds, even China, the United States’ greatest enemy was, until recently, the possession of more than $1.2 trillion of the American bonds.
In addition, the state of reassurance made the opponents of the United States are also on top of them is China, once again build up their reserves of dollars and continue global trade in dollars without thinking 0f changing that.
What has changed?
Since the beginning of the current century, the United States started to use the dollar as a weapon, targeting its foes and later its allies in an escalating and unprecedented pace, in addition to using the system of financial transfers “SWIFT” which is also a weapon to punish its opponents such as China, Russia and Iran, however, although this contributed to creating thinking about alternatives, it remained limited, it did not reach the level it is today.
With outbreak of the Russian-Ukrainian war, the United States took a move that is perhaps the most influential, even for its allies, when it broke one of the most important rules that it sets by declaring the freezing of Russian reserves abroad, which exceeds $300 billion, violating the principle of reserve and financial sovereignty of countries, which caused panic in the world and pushed China to get ride off of US bonds at a high rate by reducing them to the lowest, be $900 billion, after owning bonds of more than 1.2 trillion dollar.
It is true that China started to get rid of the American bonds since a period of time, but getting rid of those bonds augmented with standard rates since that the US has carried out the freezing of the Russian reserves immediately after the outbreak of the war between the later and Ukraine.
Why is there a need for getting rid of the Dollar dominance?
The idea is that the dominance of the American dollar does not satisfy because this hegemony has a negative economic impact on others, in addition to the most obvious reason, which is that it represents a dangerous “weapon” in the hands of the United States of America, which is clearly changed by the sanctions which are estimated to have population of one billion people, which makes it a global nightmare.
In this context, professor of economics at Harvard University Kenith Rogof, in an interview with Bloomberg, that” Arming the dollar” in accordance to his description, may terminate its dominance within 20 years, because the other states will seek for alternatives, indicating to the power of sanctions on Russia that will lead to the “expediting” of the changes in the international financial system, regardless, the time estimated here, the purpose is the behavior of the USA that may making the trend issue to reduce the dollar’s hegemony that has made it an urgent necessity for others.
Continuous decline in dollar reserves
In accordance with the data of the IMF, that monitored by “Yemen ECO” the percentage of dollar reserves to the central banks that goes in decline continuously, whereas it has been reduced with end of 2021 to 59% and was considered “the lowest level for 20 years” but the matter has not stopped at this limit, the percentage was reduced at the end of 2022 to 58.3% and it is the lowest level since 27 years.
In comparing this percentage with percentage of the year 1999, which was 71%, we can say that the dollar reserves for the central banks with the average of 0.55% annually, if we ignored the fluctuations that shake this process and it means with calculating estimations only the dollar percentage reserves at the central banks might collapsed to 50% within 15 years.
Here the cation of experts in speaking comes about “getting rid of” the dominance of the US dollar on the international economy the matter according to the figures is already happening gradually, but it takes longer time, therefore, the reduction and increase in ratios might be augmented or reduced in according with other factors, such as for example the magnitude of the other currencies reserves augmentation or decrease dealing with these currencies in the international trade.
In this context, the Chines yuan showed progress with regard to its share of foreign currency exchange reserves in the central banks, whereas its share percentage 1.08 in 2016, to 2.8 % in 2022, noting that the yuan did not become a component of foreign exchange reserves for countries until 2016, after negotiations between China and the international Monetary Fund.
Efforts to liberate the International Trade
In spite of the obvious retreating that the numbers showed in what related to dollar cash “reserves, that the calculating estimation for a future reducing the dominance of the dollar in general it makes more difficult to specify accurately because it is impacted also with the size of contribution in international trade, whereas it is expected analysis by the American” Orasia Review” that the share ratio of the dollar would be reduced in the cash reserves to 40% in case f retreating the share contribution in the international trade from 50% at present, to 33%.
Experts see that this matter is in hand of the international competitors od the USA as China and Russia that are starting action during the last few years “SBFS” and payment system via the limits between banks” CIPS” China in addition to the formation of “BRICS” group which includes Russia, China, Brazil, India and South Africa, which aims to beak the dollar dominance on the international economy through alternatives that included finding a unified currency for transactions between the states of the group that might more members to join the group in future.
Recently, China and Brazil announced an agreement for dealing with Chinese yuan between them for limiting the dependency on the American dollar, while Argentine and Brazil also intend to establish a unified currency for commercial dealing between them and these are only examples for the escalating movement that several states are pushed towards it to accomplish the same target: limiting the dominance of the dollar on the international economy.
Although the experts confirm that these moves will have a direct influence on dollar economic power, they are not exaggerating in the estimation of the size of this influence, because the getting rid of the dollar dominance is still a long term goal, as the biggest part of the world states possesses large reserves of the American currency and reducing its value that will sustain losses in these countries, in addition there is still need to establish a system for alternative international remittances and payment require new agreements and may be new international banking institutions.
US Sanctions Effect the Allies
The American sanctions on Russia did not shock the foes of Washington only but also its allies the Europeans and the middle east countries as it is first breached the economic state’s sovereignty, as it happened in Russia after the economic stability contributed in the policy principle and the international trade, but that was not alone which contributed in the exposition of the European allies’ concerns publically, The US has already sanctioned European, UAE and Omani companies under the pretext the violation of the US sanctions on Iran.
That is true that those sanctions did not reach the level that happened with Russia as a new precedent in the world, and what happened to European companies as a precedent among allies made European countries led by France and Germany feel that they could be one day exposed to what Russia was subjected to, or even less than that, but it would be disastrous. All of this made Washington’s opponents and allies share concerns and thinking about a multipolar international system, even if the level of anxiety varied between Washington’s foes and allies.
Within this context, (Le Figaro) the French newspaper said that the domination of the American currency on the world started to lose its momentum with the arming of dollar since the beginning of the Russian-Ukraine war, if the western economic sanctions on Russia had an impact on the global economic trade and financial system that raised concerns in the global market, it added that one of the main issues under discussion is the status of the American dollar.
At early April 2022, after less than two months of the outbreak of the Russian-Ukraine war and declaring the sanctions on Moscow, published by the American channel (CNN) a report entitled” after about 80 years of its domination. is the American dollar in danger? Started as saying” the USA may have the most powerful military in the world. But the greatest weapon is the dollar. Now, after nearly 80 years of dollar dominance, the United States may be in danger of losing its status as the world’s reserve currency.in an agreement on freezing the Russian reserves expands the international concerns of using Washington the dollar as weapon, the report says that the super power has huge responsibility if it uses the WMD even economically, the people would be terrified adding that “ the other states had diversified their investments away from the American dollar to other currencies for protecting their selves of the same destiny of Russia.
Europe: Washington lost its distinction: there must be alternatives
If these feelings have been escalated with what happened recently in Russia but is only the beginning, in September 2018, the DW website published a report entitled “dismantling the dominance of the dollar under the patronage of Europe and China “focused that the American sanctions “increasing severally and don’t discriminate between a friend and an enemy, therefore, the number of countries which are trying to get rid of dollar dominance of their foreign trade are increasing, it seems that their chance is good to break the power of this currency on the international financial system.”
Regarding the position of the European Union regarding its counties being affected by the US sanctions, the report says that the most eloquent calls to limit the dominance of the dollar were what was stated by the president of the Union, Jean-Claude Juncker, who is known for his friendship with the political elite in Washington. In his speech in the first half of September 2018, in his speech to the parliament Juncker called to take necessary steps to strengthen the position of the euro in the global financial system as of 2019, Juncker described Europe’s payment of about 80 percent of energy imports in US dollar as” Fantasy” and said “it is also funny that European airlines buy European planes in dollars and not in euros.
Conclusion: A fixed reality before us which is the dollar is retreating, we have clear indications confirm that the retreat will continue as long as the affected countries from the dollar dominance, on the international economy search alternatives, the getting rid of this dominance would be the probable result that is directed towards it various indications in the future, and this the later, is the only variable that is difficult to specify it accurately at the present time.