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Xinhua Commentary: Washington is hitting gas on de-dollarization

Source:Xinhua 2023年05月31日 15:59

A man passes a foreign exchange office in Cairo, Egypt, Dec. 25, 2022. (Xinhua/Ahmed Gomaa)

The steady decline in the U.S. dollar's role as an international reserve currency is inevitable and obvious.

While the dollar's leading edge is gradually slipping away, Washington's weaponizing of its currency is further fueling de-dollarization.

BEIJING, May 31 (Xinhua) -- In the wake of World War II, the United States joined many Western countries and built the Bretton Woods system, laying the foundation for the current international monetary system and the global supremacy of the U.S. dollar.

Almost 80 years later, the greenback is still the world's dominant currency. Yet the United States, perhaps unintentionally, is accelerating the de-dollarization process because of its kick-the-can-down-the-road style of addressing the destructive cyclical debt crisis, and the almost out-of-control impulse to weaponize its dollar hegemony in exchange for global domination.

For the world to continue sustaining its faith in the U.S. dollar, the currency itself must be credible and the country trustworthy. Yet the American political elites of both parties are damaging both qualities.

For decades, the dollar's primacy has encouraged the United States to hose the world with its banknotes, which in turn has been inflating the superpower's liabilities. Facing the skyrocketing numbers, nations across the globe have become increasingly anxious about America's ability to settle its bills in the long run.

Even though the current crisis may have been temporarily avoided, it will for sure resurface in the future, thanks to unruly U.S. politicians, unchecked government spending, and the absence of structural reforms, said Michael Strain, director of economic policy studies at the American Enterprise Institute.

Pedestrians walk past the National Debt Clock in Manhattan, New York, the United States, on May 29, 2023. (Xinhua/Liu Yanan)

Will the debt ceiling eventually be breached as the next deadline approaches? This trillion-dollar question is on many people's minds around the world as U.S. politicians rush to declare victory over their opponents.

The concerns about a U.S. debt ceiling breach are by no means exaggerated. After all, who would have thought the U.S. Capitol Hill would be stormed in modern times?

According to projections by the U.S. Congressional Budget Office, the federal debt held by the public will grow as a share of annual economic output from 98 percent in 2023 to 118 percent in 2033 and 195 percent in 2053.

As the national debt swells to new highs, so does politicians' proclivity for brinkmanship, because the higher the cost of a default, the more likely opponents will compromise.

The fact that Washington has raised its debt limit over 100 times in the post-war era is hardly reassuring to the rest of the world. In fact, it is terribly bad news for the world economy still struggling to recover, because it creates tremendous uncertainties in the global market.

"America's sway over the world economy is being eroded by self-inflicted policy wounds, with a dangerous standoff over the debt ceiling putting renewed scrutiny on the dollar's preeminent status in global trade and finance," a Bloomberg opinion piece argued recently.

The steady decline in the U.S. dollar's role as an international reserve currency is inevitable and obvious. Data from the International Monetary Fund have already shown that while the dollar remains dominant for now, its share in global foreign exchange reserves had declined from over 70 percent in 1999 to 58.36 percent by the end of 2022.

While the dollar's leading edge is gradually slipping away, Washington's weaponizing of its currency is further fueling de-dollarization.

This photo taken on April 20, 2022 shows the U.S. Federal Reserve in Washington, D.C., the United States.(Xinhua/Liu Jie)

If the sweeping U.S.-led Western sanctions against Moscow, notably the expulsion of Russia from the SWIFT system, during the Ukraine crisis in 2022, harbor any lesson for other countries, it is that America's sizable economic toolkit is a menace that could force others to toe the U.S. line or risk being cut off from the global financial market and the dollar-based banking system at Washington's whim.

Such a possibility has stirred growing fear among many non-Western countries that they could some day be easy prey for a weaponized U.S. dollar. No wonder such sentiment has been driving them away from the U.S. currency, and more nations are advocating for an increased use of other currencies.

"We are going to create a currency in Latin America because we can't keep depending on the dollar," Brazilian President Luiz Inacio Lula da Silva pledged last year during his presidential campaign.

Not coincidentally, Southeast Asian nations are also de-dollarizing their trade and promoting local payment systems. At the Association of Southeast Asian Nations (ASEAN) finance ministers and central bank governors meeting in March, policymakers discussed the idea of cutting their reliance on the dollar, the Japanese yen and the euro and "moving to settlements in local currencies" instead.

In the Middle East, the major oil exporter Saudi Arabia has reportedly signaled its openness to trade in other currencies other than the greenback.

The instances attest to Tesla and SpaceX CEO Elon Musk's viewpoint that "if you weaponize currency enough times, other countries will stop using it."

Surely, the U.S. dollar is not going to fade away any time soon. By incessantly creating unwarranted disruption to global financial stability and relentlessly threatening to take away currency reserves accumulated by foreign central banks, U.S. politicians are eroding the U.S. prestige and currency. Listen! The cracks in the dollar dominance are opening up.

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