While Donald Trump continues to work towards bringing dollar supremacy back on the radar, it seems that the world is already looking towards adopting alternatives, especially due to the dollar’s volatile nature and flickering US monetary policies. A new report suggests the growing trend of US dollar weaponization is actually pushing the de-dollarization narrative, with nations searching for alternatives in hopes of stabilizing their economies.
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US Dollar Weaponization Grows: What This Means
The US dollar is currently the world’s leading transacting currency. The American currency currently enjoys a novel status, known as the reserve currency status. However, since the Cold War era, the US adopted a rather fierce stance by using the dollar as a tool to impose economic sanctions on nations. This move limited the dollar’s role in a worldly realm, touting it as a “problematic currency” for the other nations to comply with and work with.
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“Since the Cold War era, the United States has been using the dollar and the dollar payments system as a weapon to impose economic sanctions on unfriendly countries or on those countries whose actions do not align with US interests, aiming to control their behavior and actions. The US has been employing sanctions since the 1950s, initially imposing them on the Soviet Union and North Korea.”
The US continued to deploy aggressive sanctions on nations, extending them towards Iran, Cuba, Venezuela, Afghanistan, and Pakistan. The move prompted nations to contemplate various protective strategies, giving rise to a multipolar financial system.
The aforementioned move sparked a widespread de-dollarization drive, with blocs like ASEAN and BRICS helming the narratives boldly.
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“Following the Ukraine conflict in February 2022, the U.S. blocked Russia’s access to USD 300 billion in liquid foreign exchange reserves in the US and in NATO countries. Although some allies of the United States supported this move, it raised concerns among other states. It was realized that the U.S. might weaponize the dollar even against its allies if it finds that a country’s policies are not in the U.S.’s favor.”.
Status Report: Is the USD Truly Losing Out?
While countries continue to accelerate efforts to derail the US dollar, its status as the world’s leading currency may make it difficult for these nations to erode the USD. Per JP Morgan, the growing weaponization of the dollar has certainly impacted nations, but it would be hard for them to completely ditch the US dollar.
“Diversification away from the dollar is a growing trend. However, they emphasize that the factors supporting the dollar’s dominance remain deeply entrenched and structural in nature. The dollar’s role in global finance, its economic and financial system for USD liquidity, and institutional transparency all indicate that any meaningful erosion of dollar dominance is likely to take decades.”
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