For the first time in nearly half a century, countries around the world are beginning to react to American hegemony. dollar.

Undoubtedly China plays a central role in moving away from the dollar as the government has made it a priority to expand the use of the yuan in the global financial system.

Brazil and China recently reached an agreement to use their own currencies in bilateral trade, bypassing the dollar. India and Malaysia have agreed to increase the use of the rupee in cross-border transactions. The Association of Southeast Asian Nations will use more local currencies in trade and investment. The BRICS countries are considering the scenario of creating a new common currency. Even France, which has always been a partner of the US, started trading in Chinese yuan.

While those who closely follow the currency markets have at times underestimated the collapse of the dollar in the past, this case is different because it includes – small or large – practical and significant steps to beat the US currency. .

The rationale behind these steps is common to many world leaders. They claim that the US is using the dollar to advance the interests of the country and punish those who oppose it.

Her example is more typical Russia, where the US dealt an unprecedented economic blow after invading Ukraine. The US government imposed sanctions, froze hundreds of billions of dollars that Russia had in foreign exchange reserves, and, together with partners in the West, excluded it from the global banking system. For many countries, these sanctions were a reminder of their over-reliance on the dollar, regardless of their attitude towards the war.

And therein lies the dilemma facing officials in Washington: By bolstering the dollar’s role in winning geopolitical battles, they are jeopardizing both the currency’s primacy in international markets and its ability to influence the world stage. Indeed, according to author Daniel McDowell, who has studied the international response to the dollar, it is sometimes better to leave sanctions as a threat than to apply them to ensure their long-term effectiveness.

After the collapse of the Bretton Woods system of fixed exchange rates in 1971, the dollar became central to the global financial system and to this day supports the demand for US bonds and allows the country to run huge trade and budget deficits. At the same time, the United States has the ability to exert a huge influence on the economic “destinies” of other states.

The BRICS countries are considering the scenario of creating a new common currency.

About 88% of all transactions, even those that do not involve the United States or American companies, are in dollars. Because banks that process cross-border dollar transactions have accounts with the Fed, they are vulnerable to US sanctions. While sanctions against Russia are the most egregious example, in the past both Democratic and Republican administrations have imposed sanctions on countries such as Libya, Syria, Iran and Venezuela.

He stays strong

“When we use economic sanctions linked to the role of the dollar, there is a long-term risk that we will undermine the hegemony of the dollar,” Treasury Secretary Janet Yellen told CNN. However, he noted that the dollar “is used as a world currency, because it is not easy for other countries to find an alternative currency with the same properties.”

And market watchers agree. While more and more countries are trying to reduce their dependence on the dollar, few expect it to lose its place in the global trading and financial system anytime soon.

First, because there is no other currency that offers a similar level of stability, liquidity and safety, Bloomberg market participants report. And second, most of the advanced US partner countries, which account for at least 50% of global GDP, seem unwilling to do without the dollar.

Indeed, after the imposition of sanctions against Russia, the dollar strengthened against its main competitors. This shows that even if it loses its place in the financial system, it will be a long and slow process.