Could the United States dollar be dethroned?
The U.S. dollar is used far beyond America’s borders. Oil is traded in dollars, while some countries peg their currency to dollars. A few smaller countries like El Salvador just use U.S. dollars altogether instead of their own currency.
But there are calls for that to change. Earlier this month, Brazilian President Luiz Inácio Lula da Silva urged developing countries to use the U.S. dollar less and find an alternative. China and Brazil reached a deal to trade in their own currencies instead of using the dollar. Saudi Arabia is reportedly considering accepting Chinese Yuan instead of dollars for oil deals.
How significant is this call for de-dollarization, and what would it mean for the United States? Zongyuan Zoe Liu is a fellow for international political economy at the Council on Foreign Relations and recently joined Marketplace’s Sabri Ben-Achour to discuss.
Below is an edited transcript of their conversation.
Sabri Ben-Achour: Does the U.S. gain anything or lose anything from having its currency used so widely?
Zongyuan Zoe Liu: For Americans, this is actually quite convenient for us because you know, when we travel abroad or when we buy stuff, we don’t have to think about what if our currencies are not accepted. The other aspect for that, it would be for American business. The idea that the U.S. dollar is widely accepted in international transactions. And the theory is also actually political gains, or geo-economic gains for us as well.
Ben-Achour: So what’s the downside for a country like Brazil or China, India, Saudi Arabia, in using the dollar so extensively?
Zoe Liu: So there are two risks, the one is economic risk or transaction risk. And then the other is geo-economic risk. Every single transaction, it involves not just exchange rate risk. There is also transaction fee. That’s the economic risk. And then the geo-economic risk is very much pronounced now, after Russia’s invasion of Ukraine and how the West sanctioned Russia. The idea that for a country that relies upon the U.S. dollar to make international transactions and yet at any single moment, you could potentially be kicked out of the dollar-denominated international system.
Ben-Achour: Do you think the increased use of sanctions by the U.S. in recent years, looking at Iran looking at Russia, has created more of an incentive or desire to get away from the dollar?
Zoe Liu: I would say yes. The risk of being sanctioned is increasingly real. But I would clarify by saying that it’s not necessary that it wants to get rid of the dollar, because the dollar is still very much the international dominant currency. It’s really about if they no longer have access to the dollar-denominated international system, what can they do?
Ben-Achour: How realistic is it that the dollar might be dethroned so to speak?
Zoe Liu: Right, I would say is not necessarily that any other country could potentially or a coalition of willings, if you will, could dethrone the dollar anytime soon. Although the financial plumbing is there. I would say the only way that the United States dollar can be dethroned is probably going to be some strategic mistake that the United States made on its own. You know, for example, the debt ceiling debate or another 2007/2008 triggered or started from the United States. So, if the United States does not make a mistake on its own, I would say the risk of the U.S. dollar being dethroned in our lifetime, I would say is very minimum.
Ben-Achour: Zongyuan Zoe Liu is a fellow for international political economy at the Council on Foreign Relations. Thank you so much.
Zoe Lieu: And thank you for having me.
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