‘The looming challenge to dollar dominance’

This is apropos three letters to the Editor titled “The looming challenge to dollar dominance” by this writer carried by the newspaper on Tuesday, Wednesday and yesterday.

Middle Eastern nations are actively reducing their reliance on the U.S. dollar by diversifying currency usage in trade, strengthening regional financial cooperation, and developing alternative payment systems.

For instance, in January 2023, Saudi Arabia’s Finance Minister, Mohammed Al-Jadaan, announced the kingdom’s openness to trading in currencies other than US dollar, marking a significant shift in its economic policy.

Additionally, countries like Saudi Arabia, Egypt, and the United Arab Emirates have joined or expressed interest in joining the BRICS group, which advocates for reducing reliance on the U.S. dollar by promoting trade in local currencies among member states.

Efforts are also underway to establish payment systems that facilitate transactions in local currencies, reducing the need for dollar-based settlements.

Concluding, in a hypothetical world where countries have developed mechanisms to conduct trade and investment exclusively in their local currencies, US dollar would lose its status as the global reserve and trade currency, leading to a sharp decline in demand and devaluation. This would result in inflation, higher borrowing costs for the US government, and reduced purchasing power for American consumers.

The US’ ability to impose financial sanctions and influence global financial institutions would diminish, eroding its soft power and strategic leverage.

Globally, the financial system would become multipolar, with regional currencies like euro, yuan, and rupee gaining prominence. This shift would challenge US economic dominance, forcing it to diversify its economy and foster innovation.

Copyright Business Recorder, 2024