The US dollar ‘s share of all foreign exchange reserves from around the world has declined from 71% in FY 2002-03 to 59% in 2023. This drop of 12% in 20 years indicates a trend of de-dollarization, with developing countries from Asia, Africa, and South America being convinced by the BRICS alliance to trade in local currencies.
The BRICS alliance is actively encouraging other countries to end their reliance on the U.S. dollar, and this process of de-dollarization could continue in the coming years. If more countries move away from the U.S. dollar for cross-border remittance, it could add pressure on the currency and impact the American economy, potentially leading to hyperinflation if not managed effectively.
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Some countries have already taken steps towards de-dollarization. For example, France settled an LNG gas trade with China by paying in Chinese Yuan, and Argentina allowed companies to settle imports and exports using the Chinese Yuan instead of the U.S. dollar. Other countries like Iran, Iraq, and Pakistan have also started trading in their native currencies to strengthen their local economies.
If the trend of de-dollarization continues, it could reshape the global financial order and challenge the dominance of the U.S. dollar as the world’s primary reserve currency. However, the extent of its impact on the U.S. economy and global financial system would depend on the scale and pace of de-dollarization in the coming years.
