De-dollarization is the process of reducing the dominance of the US dollar in global trade and financial activities. This phenomenon is being driven by the emergence of non-US economic blocs and growing political tensions, leading countries to reconsider their dependence on the dollar. One example is Russia, which in 2021 eliminated the dollar from its National Wealth Fund to reduce its vulnerability to Western sanctions. BRICS countries are also working on creating their own currency.
The U.S. dollar became the world's reserve currency due to historical factors such as the Bretton Woods Agreement of 1944 and the accumulation of gold reserves by the United States. Although the Bretton Woods system ended in the 1970s, the dollar has maintained its dominance due to the stability of its value, the size of the U.S. economy, its geopolitical influence and the U.S. debt market. However, with the current trend towards de-dollarization and the emergence of digital currencies, the future of the dollar as the world's reserve currency is uncertain.
Andy Schectman, President of Miles Franklin, discussed the militarization of the dollar and its impact on de-dollarization. He noted that tensions with countries such as Saudi Arabia and OPEC, along with the transition to green energy, are driving this process. Schectman mentioned that China and Saudi Arabia are increasing their gold reserves and that China is selling U.S. bonds in Saudi Arabia. He also noted that Trump's tariffs act as sanctions, motivating countries like China to reduce their dependence on the dollar.
De-dollarization offers advantages such as risk diversification, but it also presents challenges such as short-term instability. Frank Giustra, a well-known Canadian businessman who is co-chairman of the International Crisis Group, believes that de-dollarization is inevitable due to sanctions against Russia and the reduction of dollar reserves. Although the dollar remains dominant, the transition to another reserve currency could be turbulent. Giustra advocates a dialogue on a new monetary system backed by gold or other commodities. Investors should diversify their portfolios and stay informed to adapt to the changing financial landscape.
Melissa Pistilli, INN Investment News Network