Economist Peter C. Earle’s opinion piece titled “De-dollarization Has Begun” has sparked debates on the future of the US dollar. While the dollar’s fate as the world’s lingua franca of commerce remains uncertain, several countries are taking steps towards reducing their reliance on the US currency. The American Institute of Economic Research (AIER) published Earle’s piece, in which he discusses the increasing trend of de-dollarization. He emphasized that it is not just the conscription of the dollar in economic warfare but also the error-fraught monetary policy regimes that have led various interests away from the greenback.
The 2008 global financial crisis and the Covid-19 outbreak led to unpredictable fluctuations in the value of the dollar. However, the pandemic triggered an expansionary response in 2020, with many countries expanding policies to print money to stabilize the economies. The resulting disregard for the inflation outbreak subsequently led to four-decade highs before the aggressive contractionary shift in policy that destabilized precarious financial institutions was implemented.
Several countries are trying to reduce their reliance on the US dollar. For example, China and Brazil are settling trades in their local currencies while the BRICS (Brazil, Russia, India, China, and South Africa) nations are working to create a new currency. Alternatives such as cryptocurrencies, central bank digital currencies (CBDCs), and baskets of commodities that represent a given nation are also being discussed. Earle, however, warned that moving away from the dollar would not be easy due to significant barriers to exit and network effects to overcome, owing to historical, technological, financial, and habitual obstacles.
A number of economists have made predictions about the future of the US dollar. Nouriel Roubini, aka Dr. Doom, anticipates that the global reserve currency system will shift from being unipolar to bipolar. Investment manager Larry Lepard predicts that the USD could lose most of its value in five years while gold bug Peter Schiff recently advised people to get rid of their dollars. In addition, Rich Dad Poor Dad author Robert Kiyosaki reiterated his prediction that the US dollar is dying.
While agreeing that the dollar may still be around for a very long time in some form or another, Earle warns that by weaponizing dollar dominance and permitting expanding mandates to disorient US monetary policy, the dollar’s fate as the world’s lingua franca of commerce over the long haul may already be sealed. De-dollarization will proceed as long as the political will to moor US fiscal and monetary policies to those consistent with the constitution of sound money remains an inconversable matter. Slowly or quickly, the dollar will lose ground abroad.
In conclusion, as economies try to navigate through unpredictable periods such as global crises, it is understandable that various interests would want to reduce their reliance on the US dollar. Whether the US dollar will remain the world’s lingua franca of commerce remains uncertain, but it is evident that several alternatives are being explored. While de-dollarization may not happen overnight, it will slowly or quickly cause the dollar to lose ground abroad.
