Death of the Dollar’s Dominance?

Written By Luke Burgess

Posted April 19, 2023

The U.S. dollar is still the world’s main reserve currency due to the strength, size, and stability of the American economy, as well as the currency’s widespread use in international trade and finance.

However, the greenback’s dominance has been a key point of geopolitical contention that has spanned decades.

France's finance minister has called the dollar’s supremacy America's “exorbitant privilege,” and he argues that the dollar’s position creates an “asymmetric financial system” where non-U.S. citizens “see themselves supporting American living standards and subsidizing American multinationals.”

Recently the dollar’s supremacy has once again been gaining significant attention with actions taken by countries like China and Russia to reduce their dependence on the American currency.

One of the key motivations for de-dollarization is the desire for greater financial independence and stability.

By reducing reliance on the U.S. dollar, countries can reduce their exposure to potential risks associated with fluctuations in the U.S. economy, especially for things like inflation and changes in interest rates. 

Another factor driving de-dollarization is the desire for greater political independence.

Many countries feel that the widespread use of the U.S. dollar in international transactions gives the U.S. an unfair advantage in global politics and economics, as it allows the U.S. to exert greater influence over the global financial system. 

By reducing reliance on the U.S. dollar, countries can assert greater independence and reduce their vulnerability to external economic and political pressures.

However, the process of de-dollarization is not without its challenges.

For many countries, the U.S. dollar remains the most widely accepted and stable currency for international transactions, making it difficult to replace. Additionally, the transition away from the U.S. dollar may require significant investment in new financial infrastructure, including payment systems and currency-exchange mechanisms.

Despite these challenges, the trend toward de-dollarization appears to be gaining momentum, with a growing number of countries exploring alternative currencies and financial systems.

This shift is likely to have significant implications for the global financial system, as it could potentially weaken the dominance of the U.S. dollar and increase the influence of other currencies, such as the euro, yen, or yuan.

It’s important to note that de-dollarization does not mean the U.S. dollar won’t remain a reserve currency. Instead, the concept of de-dollarization aims to reduce the greenback as the main reserve currency.

It’s also important to note that de-dollarization does not mean a total collapse in value for the U.S. dollar. As countries make moves to reduce their dependence on the dollar, its value will certainly decrease. However, we’re not talking about the complete death of the dollar.

De-dollarization is a growing trend in the global financial system, driven by the desire for greater financial and political independence. While the process of de-dollarization presents significant challenges and does not mean a complete collapse in value for the dollar, it will offer significant investment opportunities, particularly in hard assets like precious metals.