De-dollarization debate: Multilateralism can solve the world’s financial needs
Subscribe to enjoy similar stories. Although the US dollar remains the world’s dominant currency, many countries are diversifying their currency reserves to reduce over-reliance on it, mitigate risks associated with changes in US monetary policy and lessen the impact of global economic shocks. Reduced reliance on the dollar in financial transactions is clear in the decline of dollar-denominated deposits and loans, and the dollar’s share in global foreign exchange reserves.
India is promoting its rupee, forging currency-swap agreements and encouraging the internationalization of Indian companies. This is also seen in many Latin American countries like Argentina, Bolivia, Peru and Uruguay. Many central banks are imposing higher reserve requirements on dollar deposits and intervening in the foreign exchange market in a manner that encourages de-dollarization.
De-dollarization has many advantages, but there are also huge transitional risks. It requires substantial upfront investment in developing financial infrastructure to reduce short-term instability. Large fluctuations in exchange rates can hurt export-driven industries.
For many countries with liabilities in dollars but assets in local currencies, it can lead to liquidity crises and defaults if the local currency depreciates. While it is unlikely that the dominance of the dollar will vanish soon, its alternatives should not be overlooked. Technological advances and the rise of digital currency are changing how countries and societies think about money.
Crypto technology can change how we conduct payments, banking and other financial transactions. But cryptocurrencies also display high price volatility, which makes them less attractive as a means of payment. So, they
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