The transition to the use of national currencies in trade and economic cooperation and the rejection of the dollar’s dominance in international trade are becoming more common in the vast expanses of modern Asia. What contributed to this process, and why is de-dollarisation attractive for national economies?
Steps of progress
A few years ago, non-dollar settlements were an exception to the rule, however today it is an increasingly widespread and progressive trend internationally. Russia began to pay great attention to the expansion of trade in national currencies in the previous decade. Our country can be called a pioneer of this trend. As for other states, de-dollarisation was actively promoted by the People’s Republic of China and the Islamic Republic of Iran. Recently, India has also chosen such a policy for itself. By now, Russia has almost completely switched to settlements in national currencies with China, India and Iran. Also, Russian-Vietnamese cooperation can be noted in terms of the most intensively developing non-dollar trade exchanges.
Taking Asia as a whole, non-dollar settlements in domestic and partner national currencies (Indian rupees or Chinese yuan) are being discussed with counterparties or are already trying to be applied by Indonesia, Malaysia, the United Arab Emirates, Saudi Arabia, Pakistan, Myanmar, Bangladesh, Sri Lanka, Oman and other countries. The yuan has been used actively by the DPRK for quite a long time.
Multilateral non-Western associations are also striving to abandon the use of the dollar. Thus, in the Eurasian Economic Union, about 80% of all trade and economic transactions are carried out in rubles. The share of the USD in export-import operations within the framework of BRICS is constantly decreasing. The BRICS New Development Bank (NDB) has announced the transition to issuing loans in national currencies and issuing non-dollar securities. The Shanghai Cooperation Organisation is implementing a roadmap to gradually increase the share of national currencies in mutual settlements. Association of Southeast Asian Nations (ASEAN) member countries have begun working on expanding settlements in national currencies, signing an agreement on this at their 2023 summit.
Trouble turned out to be a help
Over the past 10-15 years, the whole world has been able to observe a number of situations that have contributed to the awareness by many countries, including in Asia, of the need to crush the unjustified hegemony of the US dollar in the global economy and international economic relations. At first, many national economies were hurt by the global financial crisis of 2008 and its consequences. Then the United States began to apply economic sanctions more and more often, over and over again, as the leading instrument of its repressive activities against all states objecting to US hegemony and leading an independent foreign policy. It was not only Russia, China, Iran and other countries of the world that were under attack, but also those who cooperated and continue to cooperate with them in accordance with their own national interests. This financial arbitrariness was condoned by international economic institutions. It continues to this day, having sharply intensified after Russia launched a special military operation and a fight against Ukrainian neo-Nazism.
Another event in recent years that has shaken the dollar world order has been the trade war between the US and China. It has unexpectedly affected the entire Asia-Pacific region. Many countries have been confronted by the West with the alleged need to divide into supporters of some and opponents of others. The prospect of dancing to someone else’s tune hurt the development of international trade, was a threat of secondary sanctions and forced states to seek some balance in their contacts with the outside world.
US monetary and economic expansion has traditionally always been reinforced militarily. Tangible pressure is regularly put on Asian countries and in some cases the US navy is constantly present in the waters of the Indian and Pacific Oceans. There are also existing network of military alliances and new ones are forming, namely the AUCUS block and an informal, but nevertheless militarily and politically oriented ‘Quad’. As a result, a situation has developed where, on the one hand, none of the countries in the region want to suffer because of others’ conflicts, but everyone understands that they can arbitrarily become a target for sanctions and any repressive measures.
Positive results
Today the need for a state to strengthen its own currency in economic policy and foreign relations is beyond doubt, but the predominance of the dollar is so deeply rooted in global trade and economic interaction that many countries prefer to move towards de-dollarisation gradually, sometimes even cautiously, first sorting everything out on their own and weighing all the arguments. As a result, they reach their own conclusions and take reasonable steps.
In China, the general trend towards de-dollarisation is seen primarily as an opportunity to promote the yuan on the world stage as a reserve currency. Chinese economists want to see it as one of the three global currencies, on par with the dollar and euro, and they point out that the US itself provoked a growing rejection of the use of the dollar with its widespread use of sanctions, forcing other countries to turn to the search for alternative currencies.
India is noting what imbalances and risks the dollar’s dominance in the global financial system has caused. In the context of the rise of developing economies, the diversification of the foreign exchange market is considered objectively necessary. The Indian government has identified the internationalisation of the national currency as one of the goals of economic policy in the coming years. This should not only benefit foreign economic relations, but also provide an alternative for those countries that cooperate with India, but for some reason experience difficulties in dollar trade.
In Iran, de-dollarisation is a strategic goal of financial policy. Tehran has first-hand experience of the dollar being used as a weapon by the US and its allies. By the way, this country has managed to effectively organise not only its foreign trade system against the background of Western sanctions, but also the activities of its central bank, which is making every possible effort to protect national interests and develop the Iranian economy.
According to top managers of Bank Indonesia, settlements in national currencies will contribute to macroeconomic stability and get rid of dollar dependence. In addition, they reduce transaction costs, help to manage transactions more effectively and develop trade and foreign exchange markets of counterparty countries.
The Emirati central bank also notes the great opportunities for trade, investment growth and the financial sector provided by the transition to national currencies, compared with pegging to the dollar.
Dilma Rousseff, President of the BRICS New Development Bank, considers the use of national currencies in international financial transactions an important component of the development of a multipolar global economic system. She names the complete de-dollarisation of its operations and assets as the ultimate goal of reforming the work of the NDB. In the meantime, it is expected that the gradual currency diversification of the banking portfolio should not only reduce the dependence of foreign trade operations on the dollar exchange rate, but also help create a new global financial system in which no single currency will dominate. Because of this, it will be possible to reduce the burden on the economies of the ‘Global South’ countries in terms of the cost of imported goods and debt payments on external credit obligations.
For ASEAN, the last straw in deciding to prioritise the use of national currencies was the aggressive rate policy of the US Federal Reserve, which causes emerging economies to urgently look for ways to stop the depreciation of their currencies. By switching to settlements in national currencies, ASEAN expects to increase inter-organisational trade, deepen integration and ensure financial stability. In addition, it should have a positive impact on regional value chains and protect ASEAN countries from possible US sanctions in case of any future disagreements. The probability of the latter is considered quite real, since, apparently, this part of the world has realised how unpredictable and frenzied American politics are.
As one can see, today the trend of de-dollarisation is a new objective reality of international cooperation – very promising and progressive. The use of different currencies in world trade is like a multi-vector approach in foreign policy, as it will help prevent a skew (like the rise of the dollar) and will form normal economic competition between states, encouraging them to promote their own national currencies instead of someone else’s. The more countries switch to settlements in national currencies and do not support the hegemony of US money imposed on them for so many decades, the healthier the international economic environment will become and the easier it will be for states to regain proper control over economic processes, avoiding any external management and interference in their internal affairs.
Ksenia Muratshina, PhD in History, Senior Research Fellow at the Center for Southeast Asia, Australia and Oceania of the Institute of Oriental Studies of the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook”