De-dolarise this

On the dangers of assuming "My way or the highway" will always work

• De-dolarisation of international trade is happening and it may be gathering speed

• It will not be fast and probably never complete

• It’s not just about the yuan

• Saudi Arabia is the country to watch

Saudi Arabia is considering the use of currencies other than the U.S. dollar in its international trade. This is what the kingdom’s finance minister said earlier this month on the sidelines of the Davos gathering.

The statement confirmed reports and speculation that the U.S. dollar as a global currency hegemon may be on its way out, especially as the BRICS alliance is about to expand, with its members signalling they would gladly deal in their national currencies rather than dollars. And that statement was just the beginning.

Also at the Davos gathering, the Foreign Trade Minister of the UAE said the emirates are discussing non-oil trade in rupees with India. Russia, meanwhile, sealed a preliminary agreement with Pakistan for the supply of oil and fuels, to be paid in “the currencies of friendly countries”.

Brazil and Argentina then made a splash when they announced they were working on a common currency, with a view to adding to it the other South American currencies as they “intend to overcome the barriers to our exchanges, simplify and modernize the rules and encourage the use of local currencies."

Most recently, The National reported that several Egyptian economists had welcomed a proposal by Russia to switch to rubles from dollars for wheat exports to Egypt, which is Russia’s biggest foreign wheat buyer. The report quoted the head of Egypt’s chambers of commerce union as saying that the switch would “be positive for the Egyptian pound and will reduce our reliance on the dollar”.

The dollar hegemony began after the Second World War, with the signing of the Breton Woods Agreement, which effectively pegged all other national currencies to the greenback. It also gave the United States power to wield its currency as a weapon, which several federal governments have happily taken advantage of.

The problem is that there is such a thing as overdoing it. Amazingly, Bill Clinton, a man not really known for telling the truth and nothing but the truth, warned the U.S. about this in the 90s.

The U.S. — and the EU — overdid it last year when they started throwing sanctions against Russia and somehow forgot to stop and think whether these sanctions might boomerang. No one, apparently, wondered if, upon seeing the world’s dominant currency wielded as a weapon with such force against one country, other countries might not start questioning how wise it is to continue depending on that currency for all their dealings, including keeping their assets in this currency and conducting trade in it.

Forex reserves are one aspect of the issue. International trade is another and, I dare say, more important aspect. With all these sanctions flying around, some governments seem to have started wondering about whether it’s a good idea to continue keeping all — or most — of their eggs in the dollar basket, as it were. And they are deciding that it may not be.