US global influence gradually shrinking as role of dollar diminishes: Expert

The diminishing dominance of the US dollar will lead to the continued shrinking of the United States' economic and geopolitical influence and an overall erosion of its global standing, an expert said during a recent interview with Yuyuantantian, a new media arm of the China Media Group (CMG). 

This global trend has been reflected since the beginning of this year, with Egypt, Israel and other countries in the Middle East have adopted a diversified strategy on their foreign exchange reserves, further reducing the share of the US dollar. 

Meanwhile, according to customs documents and other insider industry sources, Indian companies have also been using Asian currencies more often to buy Russian energy. 

India's central bank has recently unveiled an Indian rupee settlement system for international trade, a move which experts said will reduce the country's demand for US dollars and alleviate depreciation pressure on the rupee. 

Russia's second-largest bank VTB also said that it would not make payments in dollars, with Russian President Vladimir Putin last week saying that the world is losing confidence in the "untrustworthy" US dollar.

By hiking interest rates four times in a row this year, the US Federal Reserve halted its ultra-loose monetary policy that had been in place for years, forcing many emerging economies to struggle for financial resilience in the face of various domestic and international challenges. 

In the final quarter of last year, the dollar's share of global foreign exchange reserves fell below 59 percent to its lowest level since 1995, according to data from the IMF. 

Jeffrey Sachs, Director at Columbia University's Center for Sustainable Development, said that the trend of the US reserves comes amid a steady decline in the US political and economic status. 

"The use of dollar reserves goes alongside the use of dollars in settlements for international transactions and both will move in the same direction. There will be less holding of dollar reserves and less dollar-denominated and dollar-settled international transactions, and both have an economic as well as a political reason for these changes," he said. 

Sachs noted that as Washington has increasingly sought to weaponize the US dollar, other countries have been seeking reliable alternatives to regain their financial independence. 

"The economic reason is that the share of the US in the world economy is declining and, for example, when that happened with the United Kingdom in the first half of the 20th century. The role of the sterling, of the pound, diminished also because the pound played the role at the beginning of the 20th century that the dollar plays now. But the other side of this is politics [is] also related," he said.

"America's geopolitical weight is also shrinking, and America is trying to use its dollar dominance for geopolitical purposes, for example, punishing countries that it doesn't like, but other countries have options, they don't have to hold dollars and see them confiscated."

In addition, global settlement systems have been transforming, Sachs noted, adding that this will also lead to the acceleration of the "de-dollarization" process. 

"There are other factors at play as well. We're shifting from a banking settlement system to a digital settlement system. This will also change how payments are made and it will take away the central role of the US dollar and this will change the nature of the global settlements or monetary system," he said. 

As the emerging market economies have continued to increase their relative roles, the overall stature of the US in terms of the world economy is expected to decline as a whole, said Sachs. 

"The dominance of the US is gradually eroding and the role of the dollar in all of the directions we've discussed as a settlement currency is diminishing now. That goes along with the diminished role of the US in the global economy and geopolitics," he noted.

"So we're moving to a multi-currency and a multi-polar world."

(Source: Reuters) 

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