Meaning:
De-dollarization refers to reducing dependency on U.S. dollar as a reserve currency for international transactions.
Even as countries aim to reduce the dollar dependency, dollar is still by far the most widely held reserve currency and remains essential for conducting international business.
How:
De-Dollarization process involves substituting the dollar in various financial transactions of significance like: trading oil, foreign exchange reserves, and bilateral trade agreements.
Need for De-dollarization:
Though not an exhaustive list, following are most relevant reasons for De-dollarization. De-dollarization has become a buzzword for many countries looking to rewire their financial systems.
- Geo-Politics:
- Artificially tweaking exchange rate:
- Economic domination of US:
- Risk of Financial Crisis:
USA Imposing sanction on other countries, continuing and funding wars etc have triggered political tension, resulting in rise of new geopolitical blocs that are showing resistance against US dominance and adopting de-dollarization as a counter measure.
Dollar being dominant currency in global trade, it entitles USA to manipulate with its currency and get unfair advantage in trade with other countries.
While US's economic growth is less dependent on rest of the world, dollar's dominance in global trade literally hands over in golden plate to USA, significant amount of control over global economy, which US is known to have used in economic coercion, election interference, funded political violence and separatism etc threatening the sovereignty of dependent countries.
Being most preferred currency in global trade, many economies have become too dependent on US economy. So, any crisis in US economy always used to have ripple effect on global economy.