END of US Dollar Dominance? | De-Dollarisation Explodes Globally | BRICS
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Why Dollar dominates? This is a question everyone is grappling with today. Because of the imminent possibility of De-Dollarization. Is De Dollarisation possible? To get the answer we need to understand how US Dollar dominated the world for over 100 years. US Dollar Collapse 2023 news can well become true if the present problems with the US dollar don’t go away. The US dollar is embedded in almost all cross-border transactions. About 88% of all the cross-border transactions involved US Dollar.
Now let’s see a simple example. If I want to travel from India to Dubai via Emirates, I need to buy about ₹20,000 worth of tickets. For that, I need to transfer ₹20,000 from my Indian bank account to the Emirates back account. But Emirates Bank doesn’t accept Indian rupees. That’s why there are 2 other intermediate banks that enable this cross-border transaction. 1st Bank is associated with the Indian bank and the 2nd Bank is associated with the Dubai account of Emirates.
When the first Bank receives ₹20,000 from my account, they will notify the second bank to transfer ₹20,000 worth of USD on my behalf to the Emirates Bank account. Bank 1 will thus transfer $250 to Bank 2. Then Bank 2 will issue dirhams, the currency of Dubai to the Emirates bank account. These banks facilitating cross-border transactions are mostly based out of the US. In this way, almost every cross-border transaction touches US soil.
Why is the whole world reliant on USD for international trade? We need a little history lesson to understand that. From the early 1900s to 1945, all the European superpowers were involved in World War 1 and World War 2. Technological progress hit a pause during this time and everything that was invented was ultimately destroyed. Because of this the European economies were pretty much destroyed by the end of the Great war.
The US on the other hand had the advantage of not being involved in the war directly. The US wasn’t a primary theatre of war. Because of this US got the chance of developing itself during the World Wars. When the whole world was looking for stability and growth after WW2, the US was ready to lend a hand and lead the pack. In 1944, 44 countries from around the world came together and agreed that they would have global trade through the US dollar. Because of this, the currencies of these countries were pegged to the US dollar, and the US dollar was pegged to gold. This meant that any country having excess US dollars that it didn’t want to use could exchange those for Gold.
This was a win-win situation for everybody. During this time the US build good relations with Saudi Arabia. The US offered military support and Saudi offered a reliable supply of energy. But another clause in this deal was that Saudi was supposed to trade oil in USD only. This worked really well for the USD because every country now needed USD to buy oil. In 1971, when the Gold standard was revoked, there was still a purpose for holding USD. Because USD could now be used to buy oil from Saudi Arabia.
The possibility of de-dollarisation is now imminent. Because USD is used in all international transactions, the US Government gets the power to surveillance all international transactions. But not every country is comfortable with it. Secondly, because of the leverage, the US can put sanctions on different countries such as Iran, Venezuela, and recently Russia.
Because of this several countries have come forward to ditch US dollars for other alternatives. But is De-dollarization going to happen tomorrow? Absolutely not. Even though the dollar will lose some of its power but complete de-dollarization will take time. Every foreign reserve currency has a life-span of 90-100 years and we are nearing that lifespan for the US dollar.
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Chapter
0:00 - Intro
0:52 - US Dollar is everywhere
2:33 - Why Dollar dominates?
5:18 - Dedollarization
8:05 - Is De-Dollarization Possible?
11:00 - Outro