The world has changed. Many believe the American primacy that dominated the 20th century could be coming to a close. The world is becoming multipolar and so is the gravity of global trade.
Surely the dollar-based economic system has to adjust to this new reality? Well, not necessarily…
We currently have a huge asymmetry between several continental-sized powers driving global economics and trade – China, India, the US, Europe – and the financial ‘plumbing’ that connects them remaining resoundingly dollar centred.
And that’s despite talk of change from many places over many years.
Saudi Arabia and China have been talking about invoicing oil in a currency other than US dollars for a number of years. While Brazil’s government has been increasingly vocal about uncoupling its trade with China from the dollar.
Some would argue that such bilateral deals could be motivated by trying to avoid US sanctions or attempting to do business with countries like Russia, which are locked out of the dollar system.
The UAE dirham has been used this way to settle some oil transactions with Russia. But ironically, the dirham has been pegged to the US dollar for 25 years and is basically a proxy for it in all but name.
