Developing countries found a new weapon against the US dollar through de-dollarization, making it an agenda to dim the lights on America’s hegemony. Countries such as China, Russia, India, and South Africa went all in on the agenda to push their local currencies ahead for trade. The initiative reached a fevered pitch after the US imposed sanctions on Russia in 2022 for invading Ukraine.
Since then, developing countries rewrote their bilateral trade deals to fit their de-dollarization agenda. Local currencies were used for most of the cross-border transactions, giving the US dollar a miss. Even Trump threatened countries with tariffs if they sideline the US dollar for trade. While this brought emerging economies in line, the initiative still exists and is thriving in the global economy.
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Is De-Dollarization a Threat to America’s Hegemony?
The answer is both yes and no at the same time. Yes, because de-dollarization is now a reality and developing countries are in no mood to step back from the initiative. It is also ‘no’ because the agenda is painfully slow, rather than an immediate collapse of the US dollar. Developing countries are also caught in a fix, as accepting the local currencies of their trading partners has no use in their reserves, as the tender is not as liquid as the US dollar.
Local currencies of their trading partners are not reliable and are subject to vulnerability in the forex markets. Even a minor inconvenience can send prices tumbling, while the US dollar is capable of withstanding the market’s whiplash. While de-dollarization is adored, local currencies are not helping developing countries to strengthen their economies. This fix will remain for a longer period as no national tender comes close to challenging the US dollar.
Therefore, while de-dollarization is a reality, it is just a tiger with no teeth and claws. It looks big and mighty, and ready to pounce on the US dollar, but it has no power to cause serious damage. Until a local currency comes into existence that can challenge the US dollar, the greenback will remain supreme. In conclusion, de-dollarization is realistic, but overtaking the US dollar is nothing but a thought of fiction.