Dedollarisation

Dedollarisation wave and its impact on the global economy

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A lot of developing countries are asking for de-dollarisation. Thus the decades-old supremacy of the US dollar as a reserve currency, exchange medium, or as unit of account is facing a huge challenge. It is calling for lowering the dependence on the US dollar. In March, Brazil and China agreed in settling trades in each other’s currencies. In April Argentina said they will pay for all their Chinese imports not in US dollars but in Yuan for preserving its diminishing foreign reserves.

All such steps have been taken for promoting de-dollarisation. But what is it exactly? Why are all countries following this path? Let’s find out.

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What is de-dollarisation?

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The term refers to the process in which countries are likely to lower their dependence as an exchange medium, reserve currency, and a unit of account on the US dollar. The US dollar has a very long dominance in the global economy. But this current shift towards this process of de-dollarisation makes it clear that a vital transformation will happen. It will have major implications for the future of investment, monetary policy, and international trade.

With more interconnection in the world, there is a main requirement for a stable and fair financial system. The US dollar’s overreliance as a reserve currency has also created imbalances and vulnerabilities in the global economy. All these factors, along with the emerging markets’ growing economic power and their urge for a more resilient and diversified financial architecture have raised a lot of countries’ interest to move forward with de-dollarisation.

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De-dollarisation call got renewed: What is the reason?

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Iran experienced huge economic disruption. Recently Russia after getting disconnected from SWIFT, the international dollar trading system, asked smaller countries to search for dollar alternatives. Recently both Malaysia and India declared that they have begun using the rupee for settling some trades. Also, the finance minister of Saudi Arabia that they are ready for discussion regarding trade in currencies except the US dollar.

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Pros and cons of de-dollarisation

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It comes with both pros and cons. Pros include increased independence of monetary policy, strengthened national currency, lowered US sanction vulnerability, and diversified risk. Cons are transition challenges, restricted acceptance of alternative currency globally, and prospective short-term instability.

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Is de-dollarisation really favourable?

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Countries that have started their moves against the US dollar are Russia, China, India and Iran. The moves of China are encouraged by their desire of dethroning the USD as the superpower of the world. On the other hand, Russia and Iran did this because of the sanctions that were imposed on the country and its allies. Brazil, Malaysia, Saudi Arabia, and India are the other countries that have also recently joined this bandwagon. India has seriously initiated their efforts with new foreign trade policy implementation. It came into force in April 2023. Thus 18 countries including Singapore, Germany, the UK, and others decided to trade all settlements in rupee.

China decided to trade crude oil with Saudi Arabia using Yuan. The President of Brazil has asked BRICS countries to stop trading using the dollar and instead use their local currencies. China already completed its first trade of LNG with France’ Total Energies in Yuan. After Russia got removed from the SWIFT payment system, the US dollar has been replaced by YUAN as the currency that is most traded.??

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Impact of de-dollarisation on Indian economy

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There are many lenses using which the impact of de-dollarisation on the Indian economy may be examined. By using the Indian rupee for international trading with various countries, India will be capable of setting their interest rates, controlling the supply of money, and effectively responding to economic changes. It would let India become high self-reliant and also less dependent on several external factors. De-dollarisation will also lower the risk of currency India faced. India is very susceptible to the changes in the US dollar’s value. This is because it is used most widely all across the globe for international trading. India will be able to reduce such a threat. They will create a very secure market for investors and businesses by using their own currency. Domestic sectors in India may also benefit from it and create extra job opportunities. With a prospering local sector, the country may be able to attract more international investments and thus lower the unemployment rate.?

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Effect of de-dollarisation on our investment: What can we do about it?

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It will lead to a search for other assets worldwide. As financial investments based on dollars are huge, the search for other options will increase the prices of different types of assets globally. Equities worldwide will rise. Those that have no dollar dependency will receive a lift. The entire organisation may be snapped up. It will occur more prominently in some economies having a great consumption base such as India.

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Some assets will begin to move up

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Gold along with other precious metals like silver is a place where a part of the money will be flowing into. These two metals will smartly start to rise. It will be a trend for the long term. Everyone needs to consider this factor in their portfolios.

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More movement of money

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Money may move into commodities. Some of it may also move into assets that invest in manufacturing companies or commodity extraction. So an increased allocation to such metals must be properly looked into. It is important because of the tectonic shifts taking place in the worldwide financial system. Money may move into exotic and novel investments such as alternative asset classes including cryptocurrencies.

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The impact on the real estate

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Global real estate will also see a flow of money. It will increase the prices of commercial and residential properties, farmland, land parcel, resorts, hotels, and so on all across the world. Rentals may also move up if the values of asset increase. It will take place in India also because of the NRIs. All NRIs living in the US or US citizens having Indian origin may begin to arrive in India looking for better prospects over the next few years. They will bring investment and buy property across the country. It will be for self-consumption and also for investment. It may look distant for now. Yet it has a high chance of happening. This type of investment will begin to happen soon, even before they decide to relocate.

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De-dollarisation talks have been happening constantly for decades. There has been a strong desire for a currency that will be stable and politically neutral. But it was not materialised. So the US dollar has been the reserve currency globally even after many objections during its dominance till now. According to Deutsche Bank’s analysis, the US dollar is going through a lot of challenges on different fronts. It includes local currencies’ use as an exchange medium between two countries. It is by far the best advantage in the favour of countries that are ready to lower their dependence on this reserve currency.

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Check out Astaire Gardens?

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De-dollarisation will have major implications for the global economy. While there are some advantages to lower dependence on the US dollar, this transition will also pose a few challenges. Being aware of such implications is important for investors, policymakers, and businesses to adapt to the progressing nature of international finance and trade. From the standpoint of an investor, the perfect approach to de-dollarisation will be like addressing most investing considerations via diversification. Apart from portfolio diversification concerning sectors, asset types, durations, and industries, you need to ensure that portfolios are not only denominated in dollars but also incorporate other currencies and real assets. It is the best time to invest in real estate and thus Astaire Gardens by BPTP is the best real estate property to buy.?

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