Will Multiple Currency Blocs Emerge to Challenge the Dollar?

By N. GUNASEKARAN

In the current global context, the hegemony enjoyed by the US-led Big powers in all aspects of international affairs, particularly in the economic relations, was the main reason for growing inequality and misery of the vast majority of the people living in the Third world. Historically, such global hegemony was achieved by developed countries through extraction of the wealth of the Third World countries.

However, the recent developments, called de-dollarization, were undermining the hegemony of the Big Powers. This was acknowledged even by US Treasury Secretary Janet Yellen. She agreed that there was a risk of jeopardizing the hegemony of the dollar as the world’s reserve currency, due to the imposition of sanctions against countries that the US was hostile to.

Now, the sanctions were imposed not on one or two countries, but on more than a dozen countries. The sanctions by the US act as a weapon to subjugate the targeted countries. The people living in these countries are suffering great hardships due to sanctions.

To bypass such sanctions, the targeted countries are getting together to form alternative arrangements. That would naturally challenge the US-dominated world order, characterized by the hegemony of the dollar.

For instance, Russia was severely hit by economic sanctions. Russian leadership had initiated the process of creating bilateral arrangements with a number of countries, to carry out the trade in terms of the ruble and the local currency. Such efforts would lead to more de-dollarization.

Due to global domination of the US, many developing countries are facing a lot of economic problems as well as geopolitical challenges. They want to reduce dependence on the US dollar and to defend their economic sovereignty.So, in recent years, the“de-dollarization” gained momentum and became like a movement.

China, Russia, Brazil, India, ASEAN (Association of Southeast Asian Nations) nations, Kenya, Saudi Arabia and the United Arab Emirates and several other countries are making efforts that would lead to more de-dollarization. Recently Chinese and French energy companies clinched an agreement to settle a liquefied natural gas deal in Chinese yuan instead of US dollars. Brazil and China have also agreed to trade using their national currencies, replacing the dollar.

India joined China in promoting its own currency, the rupee, as an alternative to the dollar in global trade. India had already been trading in rupees with Russia, Mauritius, Iran, Sri Lanka and Malaysia.

The sanctions imposed on Iran by the US and its allies curtailed Iran’s ability to use the global financial system for trade and investment. This situation induced India to explore an alternative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) with Russia and China. Such an alternative would help India to trade with countries under US sanctions, using their own currencies.

India, being one of the largest importers of crude oil from Russia, has been working on increasing bilateral trade in other sectors also. India and China are expanding their economic cooperation and bilateral trade.

These developments raise questions about the future of dollar as the international currency. It is predicted that the multiple currency blocs would emerge and that no currency hegemon like the US dollar today would exist. However, it would take many years for any currency to challenge the dominance of the US dollar since the US dollar accounted for over 58% of global foreign exchange reserves and the US also is maintaining dominance over global financial institutions and trade. But many countries switching to other currencies would increase import prices for the US, harming its growth and stability.

The hegemonic powers, including the US, are desperately trying to prevent de-dollarization using many kinds of coercion including non-economic actions against regimes working for independent alliances of the affected countries.

Over the past two years, the US was vigorously taking efforts to sow discord among the countries in the Asia-Pacific region by forming its own alliances not only in the economic field but also in the military affairs.

And, the US is constantly attempting to ‘containment’ and ‘isolation’ of China, from Asian countries. But many Asian countries resisted the US' coercion and enticement, and were strengthening the unity and cooperation with other countries including China.

The Boao Forum for Asia, consisting of more than 25 Asian countries, is an organization that hosts high-level forums for leaders in Asia to share their views on regional and global issues. Currently, de-dollarization trends were evident in recent meetings of the Boao Forum for Asia. In its recent Annual Conference in China, Malaysian Prime Minister Anwar Ibrahim called for a revival of discussion for the creation of the Asian Monetary Fund (AMF). This call was given clearly to reduce reliance on the dollar, the International Monetary Fund (IMF), and the World Bank.

In the long term scenario, the de-dollarization trends will have a positive impact on the working people across the world. Asia’s working people and the entire people of the Third World have to resist the global hegemonic policies of the Big powers led by the US.

N. Gunasekaran is a political activist and writer based in Chennai, India.

From The Progressive Populist, July 1-15, 2023

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