INSUBCONTINENT EXCLUSIVE:
King Dollar is facing a revolt
currency.
Smaller nations, including at least a dozen in Asia, are also experimenting with de-dollarization
And corporates around the world are selling an unprecedented portion of their debt in local currencies, wary of further dollar strength.
No
one is saying the greenback will be dethroned anytime soon from its reign as the principal medium of exchange
But not too long ago it was almost unthinkable for countries to explore payment mechanisms that bypassed the US currency or the SWIFT
network that underpins the global financial system
Now, the sheer strength of the dollar, its use under President Joe Biden to enforce sanctions on Russia this year and new technological
innovations are together encouraging nations to start chipping away at its hegemony
markets experience, wrote in a newsletter last week
Payments
Plans already underway in Russia and China to promote their currencies for international payments, including through the use of
blockchain technologies, accelerated rapidly after the invasion of Ukraine
Russia, for example, began seeking remuneration for energy supplies in rubles.
Soon, the likes of Bangladesh, Kazakhstan and Laos were also
stepping up negotiations with China to boost their use of the yuan
India began talking up more loudly the internationalization of the rupee and just this month, started securing a bilateral payment mechanism
with the United Arab Emirates.
Progress however appears to be slow
research at Dhaka-based BRAC EPL Stock Brokerage Ltd.
A major driver of those plans was the move by the US and Europe to cut off Russia
from the global financial messaging system known as SWIFT
tens of millions of transactions every day, forcing them to lean on their own, much smaller version instead.
That had two implications
especially by China, but also beyond Beijing and Moscow
India, for example, has been developing its own homegrown payments system that would partly mimic SWIFT.
Second, the US decision to use the
currency as part of a more aggressive form of economic statecraft puts extra pressure on economies in Asia to choose sides
plans with the United Arab Emirates to settle bilateral transactions in their local currencies
China celebrated a record-high 49.1% of
cross-border payments and receipts transacted in yuan in the first half of 2022
Indonesia announced expansion of its local currency
settlement with central banks in South Korea and Australia
Southeast Asian issuers sold local-currency debt at a record pace through the
first three quarters of the year
Central bank in Laos reportedly barred commercial banks from selling foreign currencies
Just as
officials across Asia are loath to pick a winner in US-China tussles and would prefer to keep relations with both, the US penalties on
Russia are pushing governments to go their own way
looked to convince India to use an alternative system to keep transactions moving
Companies are caught more than ever in the crossfire, and face ever more complex compliance obligations and other conflicting
strengthened about 7% this year, on track for its biggest annual advance since 2015, according to a Bloomberg index of the dollar
The gauge reached a record high in September as dollar appreciation sent everything from the British pound to the Indian rupee to historic
burdens worsen and poverty deepen.
Sri Lanka is a case in point, defaulting on its dollar debt for the first time ever as a soaring
which accelerates a long-running campaign to transact more in the rupee and to set up trade settlement agreements that bypass the US
currency.
Meanwhile, dollar-denominated bond sales by non-financial companies have dropped to a record low 37% of the global total in 2022
have a limited market impact short term, the end result may be an eventual weakening of demand for the dollar
progress is another factor facilitating efforts at moving away from the greenback.
Several economies are chipping away at dollar use as a
Malaysia, Indonesia, Singapore and Thailand have set up systems for transactions between each another in their local currencies rather than
The strength and size of the US economy remains unchallenged, Treasuries are still one of the safest ways to store capital and the dollar
markets veteran and head of research at hedge fund K2 Asset Management in Melbourne
in the monetary order, which was negotiated at a hotel in a sleepy New Hampshire town at the close of World War II.
The latest efforts
Lesson
The net result: King Dollar may still reign supreme for decades to come, but the building momentum for transactions in alternate
