For over eight decades, the U.S. dollar has reigned supreme, its dominance woven into the fabric of global finance. But as history teaches us, no empire lasts forever. The dollar’s arrogance, born of decades of unchallenged supremacy, is now being challenged by a rising tide of strategic ingenuity and philosophical awakening. This shift is being driven by Russia and China, two nations with a shared vision of a multipolar world.
The dollar’s dominance was crafted in the aftermath of World War II, when the US emerged as the world’s leading economic power. The Bretton Woods system, established in 1944, pegged the dollar to gold and made it the global reserve currency. This allowed the US to print money and finance its deficits without worrying about balance of payments constraints. The dollar’s status as a global reserve currency has also given the US significant economic leverage, allowing it to impose sanctions and influence global trade. The dollar has built an American hegemony, inevitably creating for it an appetite for imperialism and political arrogance.
However, this dominance is now being challenged by the rise of alternative currencies and financial systems. Russia, in particular, has made significant strides in reducing its dependence on the dollar. Over 90% of Russia’s trade with China is now settled in local currencies, bypassing the dollar altogether. Russia also deals with India using rupees, and with other countries using rubles. This diversification is a clear indication that Russia is serious about reducing its exposure to the dollar’s whims. Russia has been a victim of Western sanctions, losing over $300 billion in assets frozen by Western countries. This has accelerated Russia’s efforts to reduce its dependence on the dollar and create alternative financial systems.
China’s efforts to internationalize the yuan have been gaining traction. The yuan is emerging as a credible alternative to the dollar, and China’s Belt and Road Initiative (BRI) has played a significant role in promoting the yuan’s use in international trade. Many countries along the BRI route now use the yuan for transactions, and its influence is likely to grow. The BRICS bloc (Brazil, Russia, India, China, and South Africa) is also working towards reducing its dependence on the dollar. The bloc has launched several financial initiatives, including the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA), which aim to provide alternative financing mechanisms for member countries. The BRICS bloc is also exploring the creation of a joint currency, which could potentially challenge the dollar’s dominance.
Even African leaders, such as the late Muammar Gaddafi, had recognized the dollar’s role in exploiting the continent. Gaddafi had initiated a plan to create a central joint African currency backed by the continent’s gold reserves, which would have reduced Africa’s dependence on the dollar. This initiative was a threat to Western interests and was likely a factor in the NATO-led intervention in Libya.
The development of alternative payment systems is another key component of this shift. Russia’s SPFS (System for Transfer of Financial Messages) and China’s CIPS (Cross-Border Interbank Payment System) allow countries to settle transactions without relying on the dollar or SWIFT, reducing their dependence on Western-dominated financial systems. These systems offer greater security, efficiency, and independence, and are being adopted by countries around the world. With alternative financial systems emerging, nations will have more options to conduct international trade without relying on the dollar. This will reduce the effectiveness of Western sanctions, which have been a key tool of US foreign policy. Countries will be able to bypass Western financial systems and conduct trade in their own currencies, reducing their exposure to US sanctions.
According to a report by the International Monetary Fund (IMF), the dollar’s share of global foreign exchange reserves has declined from 71% in 1999 to 58% in 2022. This decline is expected to continue, with some experts predicting that the dollar’s share could drop to 40% by 2030. “The dollar’s dominance is a relic of the past,” says Yanis Varoufakis, former Greek finance minister. “The world is moving towards a multipolar currency system, and the dollar will have to adapt.”
The implications of this shift are profound, and the world must adapt to a new reality. A multipolar currency system could lead to increased economic stability and cooperation, as countries are no longer reliant on a single currency. However, it also poses risks, such as increased volatility and competition for currency dominance. The world is witnessing a seismic shift, one that will reshape the global balance of power for generations to come.
The future of global finance is uncertain, but one thing is clear: the world is moving towards a multipolar order, where economic power is distributed more evenly. The dollar will continue to play a role, but it will no longer be the sole arbiter of global finance. The rise of alternative currencies and financial systems is a testament to the changing landscape of global finance, and it is only a matter of time before the dollar’s dominance is a relic of the past.
The dusk of the dollar’s reign is upon us, and the dawn of a new era is breaking. The world is witnessing a seismic shift, one that will reshape the global balance of power for generations to come. As the curtain falls on the dollar’s dominance, we are left with a question: what comes next? The answer lies in the unfolding drama of global finance, where the only constant is change.
By Twiine Mansio Charles, Founder & CEO, The ThirdEye Consults (U) Ltd.