Rivalry with China, the fallout from Russia’s war in Ukraine, and wrangling once again in Washington over the U.S. debt ceiling have put the dollar’s status as the world’s dominant currency under fresh scrutiny. It has never been more apparent that the global financial system is starting to de-dollars. As this unfolds, it reshapes the world’s energy and metal markets. It is pushing the world towards a multipolar economic order with new monetary rules less dominated by the United States.
The force at play is a familiar one: a desire by countries to reduce their dependence on the dollar in international trade. They will want to innovate cross-border payment and settlement systems, sign bilateral currency agreements and promote the diversification of foreign exchange reserves away from dollars. These efforts may not make the USD completely disappear from global finance – it will retain a stable share of payments volume and foreign exchange reserves – but they will be a significant setback for American dominance.
This trend has increased since last year’s Ukraine war, which accelerated trends already underway. The U.S. froze billions in Russian assets, imposed sanctions, and kicked Russia off the SWIFT messaging system for banking transactions. These actions and threats have sped up the shift from the dollar by making non-U.S. allies think twice about investing in U.S. assets and relying on America’s security guarantees.
At the same time, it has also fuelled speculation that non-U.S. allies will begin to diversify their assets away from dollars. For example, Russia is a major producer of many critical metals used in the energy transition, such as lithium and nickel; it’s the world’s second-largest crude oil exporter; and a major natural gas and coal producer. China is similarly well-positioned as a supplier of critical commodities.
Even though past attempts to de-dollars have ended with a whimper, these new pressures can push the trend further. If the global economy can’t rely on the USD to facilitate trade, it will have no choice but to find alternatives. The question is not whether this will happen – but when and how. And that answer will depend on a few key factors. The critical question is whether the United States will actively support a shift away from the dollar or sit back and let it happen. As the world’s leading economic power, the U.S. can afford to lose this battle, but it will still be at the heart of a bigger fight. That is why it’s essential for the U.S. to get ahead of the de-dollarisation trend and start discussing a global agreement on a new monetary system that’s not based on dollar weaponization or hegemony. That starts with creating a credible and inclusive dialogue that brings all significant economies together. It won’t be easy, but it can’t be delayed.