- In ancient times, coins ( gold, silver and copper coins) were used and coin payment system was assigned on the value of commodities. Over time, gradually all the countries started having their own different currencies.
- World Wars came with changes like fall of many empires, decolonisation, cold war and rise of new powers. Then World’s most dominant and we’ll accepted currency for International Trade, the Dollar started being used.
- Dollar was crowned in the 1944 Bretton Woods Agreement, US Dollar was established as the World’s Foremost Reserve Currency. It can be said that since 1944, the position of the Dollar in Global Business Transactions has remained intact.
- Experts have pointed out that maybe the day is not far when that Dollar will lose its acceptability and its dominance will end. Crown put on that Dollar in 1944 will be taken away from it. But if the Dollar is no longer globally acceptable, then which currency will replace it?
Domination of USA
- The US imposes direct sanctions or used the SWIFT system as a weapon during a disagreement with any country.. SWIFT is a messaging system that connects different countries’ banking systems to settle international trade or payments securely.
- In February 2022, due to Russia-Ukraine war the western world have economically sanctioned Russia and removed Russian banking system from SWIFT banking system. Due to the US monopoly over the SWIFT system, countries like France and Germany joined the ‘sanction Russia club’ without their will. We have seen this happen even before in 2012 to isolate Iran economically. The US even froze 600 billion USD forex of the Russian Central Bank and 9.5 billion USD forex of the Afghan Central Bank.
- The USA has also threatened India with sanctions because of India’s good relations with Russia and Iran.
The Repercussions –
- Since the recent sanctions imposed on Russia and it’s exclusion from the SWIFT system, there is a huge change in the export trend in Europe. For European countries to meet their energy needs, they have to convert currency from Dollars and Euros to Ruble, or to estimate good reserve.
- President Putin suggested the BRICS economies develop a basket of their respective currencies as internationL currencies. Also, ever since Putin converted the ruble from gold to the backed currency, it is expected that now the next currency will be gold?
- OPEC countries especially Saudi Arabia are using Chinese Yuan for transactions with China instead of Dollar. China is now doing all its internationL transactions in non-US dollar currencies.
- In July 2022, Reserve Bank of India has given permissions to use the Rupees in place of the US Dollar and Euro for international trade settlements.
Will Gold replace Dollar?
- Due to European history and its shaking economy owing to the Russia-Ukraine war, European currencies can’t replace the US Dollar. Chinese Renmibi, which has acquired a dominant position globally over the past decade due to rising Chinese exports, seems a bit impossible to establish as a global currency due to China’s image and foreign policy. Crypto currencies can’t be seen as becoming global currency in the near future due to unregulated behaviour.
- We are going back to the ancient world in the global trade. To counter the US dominance in international trade, Russia has been increasing its gold reserves for a decade.
- China has restricted its gold export and is importing gold to build its gold reserve. China being the largest gold producer has also become largest gold importer in recent years.
It’s not easy to find a replacement for the Dollar, but in the near future the Dollar’s stature will fall.
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