<strong>The Decline of the US Dollar? Global Economic Trends and the Rise of Cryptocurrencies</strong>

Although the US dollar has long been the dominant global currency, its share in global central bank reserves has been decreasing steadily, from approximately 70% two decades ago to less than 60% currently. This decline shows no signs of stopping.

The recent abandoning of the U.S. dollar by powerful nations has accelerated the weakening performance of U.S. assets. Former Assistant Treasury Secretary, Monica Crowley, recently asserted that the fiscal policies of President Biden have jeopardized America's economic power and its global reserve currency status. She argued that global economic trends are causing a "perfect storm," which could lead to the "end of the U.S. dollar."

The launch of FedNow and Saudi Arabia's potential move

Besides that, the Federal Reserve has announced the launch of its instant payment system, FedNow, in July of this year. This week, it starts to roll out the first stages of the digital U.S. dollar, which will perceptibly bring about more control and scrutiny. In unison, Saudi Arabia is also considering pricing its oil in currencies other than the U.S. dollar. So, where is the US dollar heading? Is this really the beginning of the end?

The significance of dollar pricing for oil and its alternatives is an issue that has not been given much thought since the "petrodollar" agreements of the mid-1970s. However, with Russia already moving away from dollar pricing and relations between Washington and Riyadh strained, it is worth examining who would benefit or suffer if the U.S. dollar is ceased to be the automatic medium for oil exchange.

Russia and Iran's efforts in de-dollarization

The U.S. and its western allies have slapped massive sanctions on Russia, especially after its invasion of Ukraine, freezing $300 billion in Russian financial reserves and expelling selected Russian banks from the international financial-messaging system (SWIFT). This move has crushed trade between Russia and the U.S. and has pushed Russia to search for an alternative to the dollar in pricing its oil and natural gas.

It is worth noting that Russia and Iran have been making efforts to reduce their dependence on the US dollar in recent months. They have intensified their "de-dollarization" push by collaborating on a gold-backed cryptocurrency that could rival the dominant US dollar.

The two sanction-hit nations intend to increase their trade volume to $10 billion per year through various measures, including developing an alternative international payments system to SWIFT. If Russia legalizes cryptocurrency in cross-border trade, the stablecoin could replace the U.S. dollar as the preferred payment method.

According to CoinDesk, Pavel Zavalny, head of the Russian State Duma's Committee on Energy, asserted that Russia has been proposing to China for a while now that they switch to using national currencies like rubles and yuan for their settlements. Similarly, for Turkey, they plan to use lira and rubles, and the set of currencies can vary.

The Russian official stated that if they have Bitcoins, they will trade Bitcoins as well. Although this remark appears to be more of an off-hand comment than an official policy statement, it signifies that Russia is aware of the ongoing debate surrounding cryptocurrencies as a tool to bypass sanctions. While it is uncertain whether powerful oligarchs are using cryptocurrencies for this purpose, it is on their minds.

China's economic strategy: Petro-Yuan and reduced U.S. treasury bond holdings

China is also advocating for the yuan to take the place of the dollar in oil deals with other countries in Asia, Africa, and Latin America. China has urged Saudi Arabia to adopt yuan as the pricing currency for their oil sales, given that it is the destination for more than a quarter of the country's oil exports. Pricing the kingdom’s oil sales in yuan, would significantly strengthen the position of China's currency and dent the dollar’s reserve currency status.

Remarkably, last week, China and France settled a liquid natural gas trade in yuan for the first time. This push for the "Petro-yuan" could extend its influence across Asia for crude transactions. China also took steps to bypass Swift, like the creation of a Cross-Border Interbank Payments System (Cips).

From another side, China has been reducing its holdings of U.S. Treasury bonds which recently fell to a 14-year low of $859 billion. This is obviously not a coincidence, but rather a thoughtful policy decision. China is attempting to reduce its investments in U.S. Treasuries and diversify its portfolio in order to reduce its dependence on the U.S. dollar while indorsing the use of the yuan in international trade.

China and other countries are distancing themselves from the U.S. dollar as a global reserve currency, partially due to the inflation problems caused by Biden's policies and the Federal Reserve's irresponsible monetary policy. These factors have led to a decrease in the value of U.S. government bonds and increased financial instability, as evidenced by recent bank failures. Additionally, the U.S. government has misused the privilege of the dollar being the world's reserve currency by utilizing it as a financial weapon against countries like Russia. This is another significant reason for the shift away from the U.S. dollar.