Concerned about America's dominance of the global financial system and its ability to weaponize the dollar, many countries have tested alternatives to the dollar.
Oilprice reported that since 1967, many countries have begun to diversify their reserves away from the dollar and reduce their dependence on the U.S. financial system.
Dollar dominance
The United States became the leading financial power after World War I. As a result, the dollar began to displace the pound sterling as an international reserve currency, and the United States also became an important recipient of wartime gold flows.
The dollar gained a greater role in 1944, when 44 countries signed the Bretton Woods Agreement, which led to the creation of a collective international currency exchange system linked to the US dollar that was linked to the price of gold.
By the late sixties, European and Japanese exports had become more competitive with U.S. exports, and there was a large supply of dollars around the world, making it difficult to support the dollar with gold, so President Nixon issued a decision to stop the direct conversion between the U.S. dollar and gold in 1971, and this gold standard ended the maximum amount of currency that could be printed.
Since Russia's war on Ukraine in 2022, trade between the ruble and yuan has increased 80-fold (Shutterstock)
Russia and China's Steps Toward De-Dollarization
While the United States and other Western countries imposed economic sanctions on Russia in response to its war on Ukraine, Moscow and the Chinese government cooperated to reduce dependence on the dollar and establish cooperation between their financial systems.
Since the war in 2022, trade between the ruble and yuan has increased 80-fold, and Russia and Iran are also working together to launch a gold-backed cryptocurrency. In addition, central banks, especially Russian and Chinese, have increased the pace of gold purchases in a way not seen since 1967 as countries move to diversify their reserves away from the dollar.
How other countries are working to reduce dependence on the dollar
De-dollarization is on display in other parts of the world: In recent months, Brazil and Argentina have discussed creating a common currency for South America's two largest economies. At a conference in Singapore in January, several former Southeast Asian officials spoke of ongoing de-dollarization efforts. The UAE and India are in talks to use the rupee to trade non-oil goods, a shift away from the dollar.
Despite these moves, many believe that the end of the dollar's global supremacy will not be resolved anytime soon. Currently, central banks still hold about 60% of their foreign-currency reserves in dollars.