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Is the dollar poised to lose its dominance of global economic and financial transactions? Many commentators apparently think so.
Russia obviously hopes they are right, given that it has been shut out of the US banking system and suspended from the Society for Worldwide Interbank Financial Telecommunication (Swift).
China evidently wants to help the process along by encouraging countries to undertake transactions in yuan. And the Brazilian president, Luiz Inácio Lula da Silva, has called for the Brics countries (Brazil, Russia, India, China and South Africa) to create a common currency as an alternative to the dollar.
Russia’s shift away from the dollar, which got under way after its annexation of Crimea in 2014, was prompted by the fear — and then the fact — of US sanctions.
More than a few commentators have since warned that other countries, witnessing US “weaponisation” of the dollar, will follow the Kremlin’s example.
China’s yuan internationalisation campaign reflects not only tensions with the US but also a desire to project power internationally, with the drive for economic and financial self-sufficiency reflected in other aspects of Chinese policy as well. The dollar’s singular pre-eminence, in this view, is unlikely to survive a world dominated by two large economies at loggerheads, only one of which benefits from the dollar’s “exorbitant privilege”.
Similarly, Lula’s common currency campaign reflects the view that the rising power and influence of the Brics can no longer be denied, and that they deserve a seat at the top monetary table, whether the US agrees or not.
So, do these global geopolitical developments augur the end of dollar dominance? History — at least 20th-century history – suggests not. To be sure, this history confirms that international currency status can be lost. But whether that happens depends on the actions of the issuing country, not simply on geopolitical circumstances beyond its control.
To a significant extent, the 20th-century history of global currency status is a history of the British pound sterling, the leading global currency of the preceding century. Britain emerged from the first world war economically and financially weakened. It had lost skilled manpower, sold off assets to finance the war effort and faced intense competition from other economies. —The Guardian
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