NOV 23 2017
Introducing Dedollarization - how various economies are trying to break the dollar hegemony
Sania Lewis

Is the US Dollar losing its status as the world’s reserve currency? The petrodollar system has allowed the United States to run a huge deficit by borrowing at low interest rates since the inception and fall of the Bretton Woods Agreement. However, as China has recently displaced the United States as the largest importer of oil in the world, there is a possibility of transitioning to the petroyuan. While to-date there has been no official development to move away from the U.S. Dollar, China has announced that it is taking into consideration trading crude in yuan. If the transition does take place, this would mean a greater demand for things in China and a lesser demand for U.S. securities.
In order to implement this transition, Beijing is planning to unveil yuan denominated oil futures in the coming few months. Russia too, is committed to promoting their own currency, particularly in the need for escaping western sanctions. The dollar monopoly in the energy trade has also caused damage to the Russian economy as hydrocarbon revenues form the most significant portion of Russia’s revenues. In addition to agreeing to use the yuan and ruble for bilateral oil trading, China and Russia have also increased their efforts to mine and acquire physical gold.
Nonetheless, the vital question that remains is whether China can convince major crude exporters such as OPEC kingpin and long term US ally Saudi Arabia to support the transition. According to chief economist, Carl Weinberg, China will be able to compel Saudi Arabia to trade oil in yuan and as soon as that happens, the rest of the oil market will follow suit thereby breaking the dollar hegemony.
Venezuelan President Nicolas Maduro has already declared to ‘free’ Venezuela from the US dollar by implementing a new system of international payments. China and Russia are gradually moving away from the U.S. dollar, although this is a process that could take upto 15 to 20 years. While the beginning of the end of the petrodollar may be impending, the dollar hegemony is not yet broken with the US dollar’s share of the world trade at 43 per cent and the yuan at less than 2 per cent.
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