A slow, gradual DEDOLLARISATION is expected

by Mariann Őry

WHILE CHINA APPROACHES ITS ALLIANCES IN A WHOLLY PRAGMATIC MANNER, THE UNITED STATES HAS BECOME INCREASINGLY MORALISTIC, POINTS OUT MACROECONOMIST PHILIP PILKINGTON. WE SPOKE TO THE HOST OF THE MULTIPOLARITY PODCAST ABOUT THE CHANGING ROLE OF THE DOLLAR AND THE EMERGING MULTIPOLAR WORLD.

- How do you see the tendency of dedollarisation?

- The tendency started on February 26th 2022 when the United States and its close allies issued a joint statement pledging to freeze the reserve assets of the Russian central bank. The moment this happened, people working in financial markets –where I spent ten years of my career – immediately started speculating that this could be the end of the dollar’s hegemony. The asset seizure, which was unprecedented in terms of scale, signalled to the world that their US dollar reserve assets were only safe insofar as the US State Department approved of their foreign policy. This has led many countries to start to shift away from the dollar. The shift away from the dollar is already happening and the pace at which it occurs only seems to be accelerating. That said, I do not expect the dollar to decline dramatically. Rather, it will be a gradual process.

- Is the end of the dollar’s extraterritoriality a realistic scenario in the near future?

- I think that this will be a slow, gradual shift away from the dollar over the next five to ten years. There is no fundamental reason for countries to use the US dollar in global trade. The financial architecture around the dollar is impressive, but it can easily replicated – as Russia and China have shown. Countries used the dollar mainly due to custom and habit.

- Malaysia’s prime minister recently revived the idea of an Asian monetary fund. Do you think it can accelerate the building of a multipolar world?

- Right now, the most likely outcome looks like the emergence of a multipolar monetary system. There is a desire amongst the BRICS+ to try to build a true multilateral currency system. As this new regime emerges though, I would not be surprised if we see greater usage of the renminbi in the interim.

Countries That Use Renminbi The Most

 Russia

 Saudi Arabia

 Argentina  Brazil

 Bangladesh  Pakistan

 Iraq

 Thailand

Source: South China Morning Post, May 2023

- According to a recent Bloomberg article, former Treasury Secretary Lawrence Summers said he sees “troubling” signs that the US is losing influence as the pace of globalization fades. Why is the US-led bloc losing its attractiveness?

- America’s economic power in the past three or four decades has increasingly been its financial power. But that power was tied to the global use of the dollar. The second component is that the Americans are mismanaging the transition. American policymakers seem confused about the strength of the United States as an economic power. They appear to think that they possess the most important economy in the world. But they do not.

- How is China’s approach to its alliances different from the US’s?

- China approaches its alliances in a wholly pragmatic manner. The Chinese do not care much about the internal governance of a country, so long as this does not impede China’s interests. The United States, on the other hand, has become increasingly moralistic about its alliances. America seems to expect that its allies adhere to American values. This would be problematic in and of itself, but it is made vastly worse by the fact that, frankly, American values appear to be in a constant state of flux and become more unusual and exotic every year.

The author is editor of Eurasia Magazine