The consequences of the financial explosion of 2008 led many nations to battle for getting access to the U.S. dollar (USD) so that they could save their national currency as the global reserve currency got held by the U.S. Federal Reserve Bank. The subsequent liquidity deficiencies and lack of access were pretty bad to a variety of currencies witnessing the decreased value against the dollar. Export-driven economies acquired some competitiveness because of these devaluations, but the countries that were dependent on imported raw materials wrestled to fund their crucial industrial inputs because of the higher costs of the borrowing dollars.
To look for possible arrangements to curb the issue, many nations provided their consent to de-dollarizing global trade and prefer to perform bilateral trade in national currencies. In other words, these trades will have fixed exchange rates so that the risks associated with currency devaluation and critical exchange rate fluctuations can be mitigated. In addition to this, geopolitical tensions and the impact of currency wars could stay neutral and be handled efficiently in an internally dominated connection with no openness to USD impact.
In recent years, the expanded weaponization of the dollar and the use of sanctions allowed & encouraged many countries to perform trading activities in national currencies as well as utilizing global payment systems other than SWIFT - which was vigorously impacted by the U.S. apart from this, the consequences of the largest ever western US-led sanctions in Russia also contributed towards the growth of calls to trade in national currencies after it introduced a “military operation” in Ukraine “to keep it away from joining NATO.”
The use of sanctions played a significant role in waking up more countries about the risk associated with keeping relying on the USD as the global trade currency and also upraised the requirements to perform the trade in national currencies that don’t get affected anyhow by the US government and financial institutions.
Read more: https://www.emeriobanque.com/news/de-dollarization-global-trade-finance-in-national-currency
