BY: Danieal Ranjbar
PEJOURNAL – From the 1940s, during the post-World War II reconstruction of Europe under the Marshall Plan, the dollar became the dominant international currency. But now, after all these years and the occurrence of several internal developments in the United States and internationally, the dominance of the dollar is threatened.
The introduction and gradual strengthening of digital currencies, including bitcoin, was another reason for the removal of the dollar from the financial exchanges of some countries. Russia and China, as the first countries to eliminate the dollar, succeeded in doing so and removing the dollar from their international transactions.
Thanks to the former President of the USA , Donald Trump, European countries and most of the countries under pressure from the US, like Iran and Turkey, started their activities for reducing use of USD in International trades. Here we are trying to analyse these efforts and strategies. Maybe the fate of the dollar will be more clear.
Attempts to Remove the Dollar
The US National Intelligence Agency, which is one of the most important security agencies in the country and is responsible for coordinating intelligence agencies operating inside and outside the United States in the US intelligence community, recently called for the employment of experts to assess threats against The dollar has become in the international financial system.
According to the announcement, the US National Intelligence Agency has requested information from job seekers who can provide new content in the face of threatening scenarios against the dollar as an international reserve currency. The ad states that the position of the dollar as the foreign reserve currency of countries has provided the United States with many opportunities and benefits, including the ability to impose sanctions on countries and companies at the discretion of the US government.
Various factors, such as the economic growth of countries such as China and India, along with the expansion of the use of virtual currencies, threaten the existence and dominance of the dollar in the global market.
After Moscow and Beijing agreed to increase the share of national currencies in bilateral trade to 50 percent, Russia’s ambassador to China, Andrei Denisov, announced a 25 percent increase in the ruble and yuan’s share, much higher than two percent that was seven years ago. The use of national currencies in exchanges with China is slowly increasing, and despite the challenging nature of trade in national currencies, geopolitical conditions have necessitated this.
Not only China and Russia but many other countries want to reduce their dependence on the dollar because the United States uses the dollar not as a “Financial Instrument” but as a lever of pressure. China is Russia’s main trading partner, and in 2019 the volume of trade between the two sides reached $100 billion, which according to the agreement is set to increase to $200 billion by 2024.
According to the US Treasury Department, the Russian Federal Reserve continued to withdraw its capital from US bonds in November, reducing its reserves by 19.2%. US Treasury Department figures, usually released three months late, show that Russia’s share of US bonds has fallen to $4.968 billion. Russia has invested $1.568 billion in long-term bonds and $3.4 billion in short-term bonds. Russia used to be one of the largest holders of US bonds in the world, but since May 2017, with Moscow launching a de-dollarization policy in response to US anti-Russian sanctions, the US Federal Reserve has consistently held its holdings of these bonds.
Has reduced. Japan and China remain the top two holders of US bonds in the world. Japan and China held $1.26 trillion and $1.063 trillion in assets by the end of November, respectively. Here is worthy to mention Russia’s Finance Ministry says Moscow and Ankara have signed an agreement using the Russian ruble and the Turkish lira in bilateral payments and agreements. The purpose of this agreement is the gradual use of national currencies in bilateral transactions.
Trade between the two countries increased 16 percent last year to $25.5 billion. The new deal is part of the two countries’ goal of reducing their dependence on the US dollar. Turkish President Recep Tayyip Erdogan announced plans last year to end the dollar’s dominance. The plans include a new policy aimed at non-dollar trade with Turkey’s international partners, including China, Russia and Ukraine.
In other side the Iran-Eurasia Preferential Trade Agreement is expected to become a free trade agreement between Iran and the bloc over time, while in the Free Trade Agreement, the volume of trade will increase several fold or even tenfold; But monetary and banking requirements are still in the process. In this regard, monetary agreements should be concluded between Iran and the Eurasian Union member states, especially Russia and Armenia.
The volume of trade between some countries and Iran has decreased due to sanctions; Meanwhile, Iran’s trade relations with Russia and Armenia continue to grow. Of course, this de-dollarization is not about Iran and several countries; Rather, many countries around the world are now pursuing a project to eliminate the dollar from their economies; Because the currency war has taken shape in the world and competitions have been formed in this field between different countries.
According to reports published by Eurasian Economic Union, 41.6% of foreign exchange reserves are held in dollars in Eurasia; Somehow, in a country like Kazakhstan, the share is 60% and in Russia it is 22% for the use of dollar reserves. 15% of Eurasia’s export earnings are in rubles and 60% in dollars;
While members are seeking to de-dollarize the union. National Swifts are also being developed in many countries as the United States uses Swift as a tool; Chinese and Russian Swift is now active, and in this regard, Swift Iran has also been launched.
Twelve banks have been identified in China through which even Iranian transactions can be carried out under sanctions; In a way, these banks may not have US shareholders or may even have been sanctioned before; Because they are not afraid of sanctions. Another tool that can be a tool of trade between the two sides is gold, because Russia is one of the largest countries with large gold reserves and can be a current in the world, so the exchange of goods with gold and intermediation of gold can be a new tool that can be used.
Europe Movements for Removing USD
The European Union’s initiative to reduce its reliance on the US dollar is the cutting-edge exhibit of skepticism towards American efforts to rebuild multilateralism amid the emergence of new regional powers such as China. By the usage of the US dollar clearing mechanism to reduce admission to overseas governments, establishments and individuals, Washington can stress countries to comply with US policies.
The European Commission outlined plans on Tuesday to increase the role of the euro in international payments and investments, so the European Union (EU) becomes less dependent on outside financial centres and the US dollar system.
Europeans were affected with the aid of the Trump administration’s selection in 2018 to withdraw from the nuclear deal with Iran and reimpose sanctions, in phase with the aid of restricting Tehran’s access to the US greenback price system. This created difficulties for the EU organizations doing business with Iran, along with their capability to purchase oil.
In a remaining gasp effort to enact its foreign policy, the Trump administration informed Germany it would sanction the Russian pipe-laying ship Fortuna involved in construction of the Russian-led Nord Stream two fuel pipeline from Russia to Germany. Similarly, the Trump administration has unleashed a barrage of financial movements towards Chinese organizations and individuals, escalating US-China competition over technological and trade.
In response, China is also taking measures to limit its reliance on the US greenback and build a choice financial network to SWIFT, the principal international repayments statistics system primarily based in Belgium. “Both Brussels and Beijing recognise the inevitability of a multipolar world shared with the United States,” Liam Hunt, an analyst at Gold IRA Guide said. “Countries are diversifying their trade and export networks beyond Washington.”
Yuan as Global Currency
China wishes its currency, the yuan, to replace the U.S. dollar as the world’s international currency. That would provide it extra control over its economy. China is working hard to make the yuan the subsequent international currency. Although in modern times a reserve currency, the yuan can’t upstage the U.S. dollar unless:
- Central banks around the world choose to keep a total of at least $700 billion worth of yuan in foreign exchange reserves.
- The PBOC allows free trade of the yuan and relaxes its peg to the U.S. dollar.
- The PBOC becomes straightforward about its future intentions with the yuan.
- China’s financial markets turn transparent.
- Chinese monetary policies are perceived as stable.
- The yuan acquires the U.S. dollar’s reputation of stability, which is backed by the enormity and liquidity of U.S. Treasurys.
On December 1, 2015, the International Monetary Fund announced that it awarded the yuan status as a reserve currency. The IMF added the yuan to its Special Drawing Rights basket on October 1, 2016. This basket currently includes the euro, Japanese yen, British pound, and U.S. dollar. In December 2015, the Bank announced it would commence to shift the dollar peg to a basket of currencies.
Chinese leaders are establishing to make it easier to alternate the yuan in overseas trade markets. To do this risks greater open economic and political systems. On March 23, 2015, China backed the Renminbi Trading Hub for the Americas. The renminbi is every other title for the yuan. That makes it simpler for North American groups to behave yuan transactions in Canadian banks. China opened up similar trading hubs in Singapore and London. On June 8, 2016, China granted the United States a quota of 250 billion yuan, the equivalent of $38 billion, under China’s Renminbi Qualified Foreign Institutional Investor program.
The point is that the level of trade is not just the reason that Dollar is main currency in the world, one of the important thing is trust; in last years according to US’s Policy with other countries specially with old friends like EU , made type of not trust situation between friends and competitors; maybe that is a best time for reactions of countries like Russia and China. The main fact that I believe to say is that it will be a slow process that will result in “the Decline of Dollar not Collapse of Dollar.”
After the Russia and China efforts in case of removing dollars in their trade plans, the US created an opportunity for people who can help in case of discovering threats for dollars in the international community and reducing these threats. As geopolitical tensions with the US have broadened in recent years, China, Russia and Europe have sought to decouple from the greenback to minimise disruptions to their trade and funding things to do from US hostility.
The point is that it’s not just these countries that in term of de-dollarization having some activities , there are some other countries like Iran or Turkey that because of their not stable relations with USA and international sanctions, would like to participate in these type of activities; so in result , by using organizations like Eurasian Economic Union or bilateral trades and economic activities, we can see the number of states who trying to remove USD from their economic activities , from time to time is increasing.
“Communist China [is] a major emerging global power and new rising regional powers from Russia, Iran, South Korea and Japan have challenged US leadership.” said Juscelino Colares, a professor of business law and political science at Case Western Reserve University in Ohio.
As mentioned before, now after the Trump Presidency and Covid-19, the dollar is in one of the weakest periods in its history of existence. China, as a country with long term plans, will try more than before to increase Yuan’s value in the global community; as mentioned before, we are not speaking about the collapse of the Dollar , but about the decline of the Dollar.