In the first half of 2024, there has been a noticeable increase in the momentum of dedollarisation in the global financial landscape. This movement is primarily fueled by a variety of geopolitical, economic, and strategic factors as countries aim to diversify their currency holdings and decrease their vulnerability to the US monetary policy as well as financial and economic sanctions, according to DBS macro analysts Philip Wee and Ma Tieying.
According to Wee and Tieying, many countries are not necessarily looking to completely detach from the US Dollar (USD), but rather to lessen their dependence on the greenback and other Western reserve currencies. This shift is partly in response to escalating geopolitical tensions, especially between the US and Europe in relation to Russia and China.
The establishment of an enlarged BRICS group could lead to the development of alternative financial institutions and systems, which would help reduce reliance on traditional institutions like the IMF and the World Bank. Additionally, BRICS countries may be able to enhance their collective influence in international forums such as the United Nations and the G20, thereby creating a counterbalance to Western alliances like NATO and the EU.
Although the USD currently dominates global FX transactions in trade and investments, accounting for nearly 90% of the market share, the process of dedollarisation is expected to have long-term implications on global markets, trade dynamics, and the international monetary system.
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