The process of de dollarisation of global currency has begun. Rather it is already under way for many months. This process was triggered by the Russia-Ukraine war after the imposition of economic sanctions by the western block against Russia. For the big oil and gas exporter Russia, switchover to the Rouble trade for these items gave a sharp, more than expected boost to this currency vis-a- vis the international ruling currency US Dollar. The exchange rate of the Russian Rouble declined from 138 Roubles in March 2022 to 57 Roubles to a Dollar in June 2022, showing the rapid strengthening of the Rouble. This showed beyond a semblance of doubt that the ubiquitous dollar was, after all, fallible.
The value of a paper currency as a monetary instrument comes from its ability to buy something of human value. In the instant case, it is oil and gas as the primary sources of energy. In fact, oil had been labelled as the new gold and this label continued through the run of the oil economy till recent times when digital data acquired this label with computer software and data driving economic growth. For long, the US dollar ruled the roost. The US, with a total accumulated debt of more than 30 trillion dollars continued to be the wealthiest and most powerful and influential country of the world. Its per capita GDP today is upward of 70000 dollars.
Throughout the larger course of civilised human existence, it is the hard coins of copper, silver or gold which have been used as monetary currencies. It is simply because of their intrinsic value and this value is based on their perceived value as also the skilled professional work performed in minting them after mining and extracting the base metals. We all know that there are finite reserves of these metals in the earth and, therefore, money available with humans inhabiting the earth was always finite and limited. Even after the introduction of paper currencies, the latter remained tied to gold reserves. This was also the case with the US dollar. But the picture changed dramatically after 1971 when the USA delinked its currency from gold. We entered a dollar dominated global economic order. This is an unnatural, unsustainable situation. This could last for some time but not for long. This had to change with the change of power balance equations across the globe. The inevitable has happened and we are witnessing that change. China, Turkey, Brazil and Egypt have been taking steps to move away from dollar in bilateral trade in the last 10 years. This phenomenon has picked pace since the Covid-19 period with many more countries doing the same. India is currently taking steps to set up rupee based trade with as many as 18 countries.
We all know from basic principles of economics that printing of currency notes is inflationary. This is borne out by the logical understanding that there are finite resources, (material and service rendering human resources) in every country. Hence, recourse to printing additional currency notes has to be done after taking due consideration of the gold reserves as also overall material and service output units comprising the country’s gross GDP. The runaway inflation during Covid-19 times was more on account of additional paper currency printing by governments, especially the government of USA. Dedollarisation will put an end to or considerably reduce the phenomenon of global inflation as witnessed during Covid-19 period.
It is observed by many economic pundits that the US itself is interested in dedollarisation to reset the value of the dollar. In the opinion of the author, dedollarisation and the usage of countries’ own currencies in bilateral trade will provide a modicum of stability to the global economic system. It will also reduce financial manipulation by big banks, brokering houses and financial institutions. It will provide the much needed checks and balances in international trade. It is a welcome change as an international economic phenomenon.
Dedollarisation is a positive change, as it will harmonize global financial transaction systems and increase healthy competition among trading countries. Currency manipulation has been a problem in the past and this can be expected to be dented considerably with the present transition. The other concomitant benefits of dedollarisation will be reduction of economic disparity among sections of global population and a severe dent on what can be called economic terrorism. The latter is a term that describes the setting of iniquitous rules of trade and economic arm twisting of weaker and poorer nations by rich and powerful ones.