Is the Dollar’s Dominance Eroding?


If you ignore something long enough don’t be surprised when an inevitable “surprise” actually happens. Or rather, don’t ignore what’s standing right in front of you. Like what? The ultimate demise of the good old U.S. dollar. That could never happen, right? For decades the dollar has reigned supreme, functioning as the world’s reserve currency and dominating world trade. Just look at the “greenback’s” history. But be careful. Objects in the mirror may appear larger than they are.

Things are changing. Let’s not stare in the rear view mirror and dwell on why the dollar’s dominance is fading, but rather, what’s going on around the globe that’s not getting enough attention. More and more counties are drawing up plans, or are actively implementing previously announced plans, to move away from the dollar.

By now, most people are aware of China’s digital yuan. Issued by the Peoples Bank of China and known as the e-CNY, the blockchain based digital currency is already in circulation in most of China. So what’s the big threat to the dollar? China has explicit desires to make the yuan an alternative to the dollar’s role as the world’s reserve currency. 再见 (bye bye) dollar in Mandarin.

But wait, there’s more. Russia and Iran are planning a gold-backed stablecoin. Not only to foster trade but also as a way around sanctions. It’s another “who needs the dollar” movement being fostered by Western governments. Saudi Arabia is strongly considering transacting oil payments in currencies other than the dollar (that’s huge).

India and Brazil are pushing for settling more trade in non-dollar units as well. Previous talk of a BRICS (Brazil, Russia, India, China, South Africa) gold-backed stablecoin is back on the front burner too, but now seems to include Iran. News recently of Brazil and Argentina holding talks of creating a shared currency only add the the growing “anti-dollar” momentum. All of this should not be overlooked.

Why is all this happening? As mentioned, we shouldn’t dwell on things in the rear view mirror. BUT it is important to note that the constant “printing of money” and the borrowing needs to fund ever growing financial deficits in the U.S. are a huge factor. The dollar’s value continues to decline. Countries are eager to diversify out of the dollar. Options to do just that are blossoming.

So while looking in the mirror can be comforting and reassuring that things won’t change, remember, objects in the mirror (dollars) may appear larger than they are. Check the front windshield and look at what’s happening ahead.

Those U.S. dollars are not as big as they once were.