After decades of US hegemony, the global shift away from the dollar is suddenly picking up speed

With Asean, BRICS and Shanghai Cooperation Organisation members pushing to settle trade and payments with each others’ currencies, the rush to ‘de-dollarise’ is gaining momentum
States put off by US sanctions and a weaponised dollar are increasingly taking advantage of the rise in alternatives to the US-led economic system

Sameed Basha

Published: 9:15pm, 10 Apr 2023

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The Ukraine war has caused seismic geopolitical and economic shifts, with Russia and China leading a rush to “de-dollarise” trade. Last week, Brazil began to accept trade settlements and investments in yuan. The week before, China paid yuan for liquefied natural gas from France’s TotalEnergies on the Shanghai Petroleum and Natural Gas Exchange – its first yuan-settled international LNG trade.

That same week, Asean’s finance ministers and central bank governors gathered to discuss greater cooperation in using local currencies for the region’s trade, with Indonesia suggesting a move away from Visa and Mastercard. Last month, Saudi Arabia, which China has been persuading to move towards yuan-settled oil and gas trade, decided to become a dialogue partner in the Shanghai Cooperation Organisation (SCO).

Both the kingdom and Iran, which has long supported a move away from the dollar, have expressed interest in joining BRICS, the bloc comprising Brazil, Russia, India, China and South Africa that, like the SCO, is interested in developing alternative payment and settlement systems to dollar-denominated ones.

Any currency that seeks to compete with the US dollar in trade settlement must be both stable and from a non-sanctioned country. Established trading currencies such as the euro, yen and pound are from countries allied geopolitically with the US, so for those seeking to lessen dollar dependence, the only currencies to consider are those of BRICS nations. Of these, only the yuan appears to be seeking an international role.

Russia, while an early proponent of de-dollarisation, has been economically isolated since its 2014 annexation of Crimea and especially so after its invasion of Ukraine.

De-dollarisation became a priority for Moscow after 2014, when it began to develop its System for Transfer of Financial Messages (SPFS), an alternative to the Swift banking system. Russian President Vladimir Putin has sought participation from other pariah states such as Iran, and the SPFS has been crucial in integrating Iran into the Russian financial sphere.

Such mechanisms lay the foundation for further cooperation among US-sanctioned states like Venezuela, Cuba and North Korea. With China in the mix, the SPFS can create a geopolitically challenging environment for the US in places where it seeks influence but has little or no economic sway.

Russian President Vladimir Putin, Iranian President Ebrahim Raisi and Turkish President Recep Tayyip Erdogan pose for a photo before a trilateral meeting on Syria in Tehran on July 19, 2022. Photo: AFP

China has also sought to reduce its dollar dependence since 2018, when former US president Donald Trump launched a trade war. In 2019, China agreed with Russia to start using their currencies in bilateral trade instead of the dollar. This was a monumental shift given that 80 per cent of Russia’s exports were dollar-denominated in 2013. By 2021, Russia held nearly a third of the world’s yuan reserves.

Even US allies such as Israel recognise the shift towards a multipolar world. Last year, Israel’s central bank started holding yuan in its foreign exchange reserves for the first time – cutting the dollars, euros and pounds it held to make way for the yuan, yen and the Canadian and Australian dollars.

With the rise of alternatives to the US-led economic system, more countries have begun to ease their dollar dependence and maintain a non-aligned stance.

The overuse of sanctions in weaponising the dollar against states that disapprove of US foreign policy is making both major and emerging economies nervous. Also problematic is the US’ increasing demonisation of China, and labelling it as an “adversary” – when China is the top trading partner of more than 120 countries.

Russia and China are ‘working together to reduce the world’s reliance on US dollars’

If Western diplomatic and economic sanctions like the ones placed on Russia were applied to Beijing, it would be virtually impossible for global economies to trade properly. Even secondary US sanctions on third parties could make these countries pariahs, causing problems for those who trade with them – and, very likely, a global financial collapse.

A quarter of the world already suffers directly from US sanctions. Last year, President Joe Biden issued a record nearly 2,500 sanctions, up from 883 in his first year, averaging 1,688 per year. In comparison, Trump averaged 1,027 sanctions a year, Barack Obama 533 and George W. Bush 435.

But, as US senator Marco Rubio said in a recent interview, “in five years … there’ll be so many countries transacting in currencies other than the dollar that we won’t have the ability to sanction them.”

The rush to de-dollarise is gaining unprecedented momentum as an expression of low confidence in the US currency – its stability and reliability are being questioned as interest grows in alternative investments such as other currencies and gold.

At this rate, the world could fracture into three blocs: “BRICS Plus”, non-aligned states, and the G7 plus Australia. Friction would increase as they struggle to agree on a unified, impartial and objective monetary system, which may incorporate digital currency elements. Such a fragmentation would erode America’s exceptionalism, but it would only be the beginning.

An alternative global financial order led by China and Russia would democratise the economic space. It would bring checks and balances absent from the US-led economic order, which is unilateral and dictatorial in practice, and a tool to target those who disagree with America’s world view.

After decades of US unilateralism, de-dollarisation has suddenly gained momentum in just a few weeks. A quote by Vladimir Lenin sums it up: “There are decades where nothing happens, and there are weeks where decades happen.”

Sameed Basha is a defence and political analyst with a master’s degree in international relations from Deakin University, Australia