Why Can't the World Give Up the Dollar?

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The US dollar (USD) has long held a key role in the world economy, not only as the primary reserve currency but also as the most common payment tool in international trade transactions. However, this dominant position is facing major challenges, especially after geopolitical events like the Russia-Ukraine crisis and growing concerns about US sanctions.

“The risk of de-dollarization – i.e., countries gradually shifting away from using USD in trade and reserves – is becoming a focal point as geopolitical and geostrategic changes become increasingly evident” - Alexander Wise, Strategic Research, J.P. Morgan

• Moscow negotiates with China to avoid using the US currency…

• Brazil's new government declares desire to detach from the dollar in trade with China…

• And baseless news like Saudi ending the 50-year Petrodollar agreement (no such agreement exists, Saudi has always been free to sell oil in other currencies)

… and a series of different moves from various countries have raised concerns about the dominant position of the greenback in the global financial system.

Can USD maintain its dominance, or will the global financial system shift to other currencies like China's CNY?

Why, contrary to the above concerns, do the data show that the Dollar is being used more in the global financial system?

• According to IMF, in the past 4 years, the USD usage ratio in global transactions has increased from 18% to nearly 33%.

• In foreign exchange transactions, the role of USD has increased from 87% in 2012 to 88.4% in 2023

  

• In international payments through the SWIFT system, the US dollar usage ratio increased to 48.03% in 2023, far exceeding the next closest rival EUR

However, even as USD's role in payments and transactions increases, this may not necessarily be good. USD's role as a store of value is gradually narrowing, indicating changes in its position with countries.

This Viet Hustler article will cover 3 uses of the dollar: store of value, medium of exchange, and denomination of loans, thereby outlining its importance and position in the current global financial system.

• The Decline of the Dollar in Its Store-of-Value Role

• Dollar: Most popular medium of exchange & Gresham's Law

• Dollar-denominated debt - the world's largest-valued debt

• Why can't the world give up the greenback?