But she said that it is unlikely to happen because of the dominance of the dollar, which permeates every aspect of international trade, finance, and monetary policy. It also provides economies with a lifeline for money during financial crises.
Narrowing the gap between the dollar and other currencies will be challenging as long as self-reinforcing synergies and forms of opportunism persist, noted Norrlöf, a professor of political science at the University of Toronto and an expert at the Atlantic Council.
She admitted that there are challenges to the dollar’s hegemony and that dedollarization isn’t impossible. Growing tensions between China, Russia, and the West as well as global unhappiness about the use of the dollar in sanctions have given the notion more traction.
All users would have to disrupt these network effects and bear the costs in order to bring about a dollar collapse and create a new global order in which the dollar plays a smaller role, she said. Governments would have to cut off all political and economic links to the US. For instance, several of the BRICS’ members would need to quit depending on US liquidity and consumer demand in order to satisfy their vow to establish an alternative reserve currency and payment system.
If a strong enough substitute could offer the same advantages as the dollar, major markets would be more ready to ditch the greenback. However, no other tender can currently replace the dollar’s function, despite efforts to promote currencies like the Chinese yuan.
The dollar performs better than its main opponent, the euro, in almost all areas, including reserve currency usage and cross-border lending.
According to Norrlöf, a de-dollarization collective is also implausible because nations would no longer have access to the US security guarantee. Even nations that do not directly benefit from US defence would be hesitant to deteriorate their relationship with the US, a major military force.
“For governments, unplugging from the dollar system also means disconnecting from all that the US has to offer, including liquidity provision, consumer demand, dollar-swap lines, and a security umbrella,” the author stated. Currency hegemony is persistent.