Is de-dollarization a good thing?

January 07, 2023

Globalization, which has accelerated since the beginning of 1990 (due to the collapse of the world socialist system, among other factors) and was characterised by the dominance of the most powerful country in the world - the USA, today (according to international experts) has exhausted its outreach potential. In the recent years, the opinion that the world politics and economics are acquiring even more traits characteristic of the so-called bipolar world has gained ground, giving globalization processes new features.

The end of dollarization? Of course, the two largest powers - the USA and China - from year to year not only maintain global leadership, demonstrate considerable economic, scientific and technical achievements but also form a circle of partner countries around them, strengthening of which is likely to lead to new institutional alliances or groupings. The US grouping already has a long history. It is made up of the of G7 countries (USA, Canada, Great Britain, Germany, France, Italy, Japan). China is the leader of the BRICS grouping (Brazil, Russia, India, China, South Africa), which unites large emerging countries, but, as we noted (Update of bipolarity of the world? – 08/15/2022_ANALIT_ZAPIS_Yurchyshyn.pdf), it does not have the adequate international and integrational influence yet, in particular, due to the internal contradictions of the member countries.

This growing bipolarity means that, on the one hand, the intentions of creating a universal system of economic relations (like the WTO) do not look realistic today. On the other (since the processes of establishing new alliances are only gaining momentum), attempts to show "ambitions" will be characteristic of a number of emerging countries, including because the leading countries will "compete" for their involvement into their orbit. Such intentions and their implementation will actually accelerate the so-called fragmentegration of the geopolitical world, which will probably replace "pure" globalization. Moreover, as in many global processes, fragmentation does not mean the closure of a country's economy within only one of the formed groupings (rather, it will be determined by the ability of the national institutions of a specific country to obey (adapt) to the established rules of the game). Therefore, another feature of fragmentation lies in further expansion of the already formed alliances to involve potential new members (candidates for joining). 

It should be noted that since globalization accelerated during the period of dominance of the US dollar (even the newborn Euro failed to become a real "rival"), it is quite obvious that globalization was associated with dollarization. Therefore, the desire of many countries (most often not economically, but politically driven) to get rid of or to reduce their dependence on the dollar (de-dollarization) essentially "fuels" the processes of fragmentation.

Why is the attention to de-dollarization processes growing now?

Post-coronavirus imbalances and the war in Ukraine strengthened pre-crisis trends in many countries of the world, including those caused by inflationary shocks, energy imbalances, and disruption of chains of added value. The anti-inflationary increase in interest rates by central banks, first in the USA, and then in most of the leading developed countries, provoked fears of long-term recession, capital flight, depletion of reserves, etc., in the short run - import of inflation, acceleration of devaluation in the emerging countries. 

As a result, losses occurred in value indicators, which complicated foreign economic transactions. To counter and prevent such losses, bilateral and multilateral currency agreements (swaps) intensified, which effectively contributed to fragmentation. The disadvantage of this approach also quickly became apparent: different participants of such agreements may have different development goals, which hinders coordination of the proposed measures.

Consequences of the current stage of fragmentation. If the current problems with the symbol of one of the poles - the dollar - are quite clear, what systemic processes are taking place around the second pole?

As we noted, while the circle of the US partner countries is firm enough (despite periodic contradictions) and is associated with democratic countries, China still needs to form a circle of strategic support (primarily, from the leading emerging countries). The activisation of such a circle (after the 14th BRICS summit, which took place at the end of June 2022) was evidenced by the fact that Argentina, Iran and Algeria applied for BRICS membership (and became candidates for admission), effectively forming the BRICS+ platform. Since a number of other emerging countries (Indonesia, Mexico, Saudi Arabia, Turkey, Egypt, etc.) also announced their readiness to submit applications in the near future, this expansion process was even informally termed BRICSpansion.

A certain haste of the BRICS expansion process is caused precisely by economic (which, of course, are also political) factors and is connected with the fact that almost all members and applicants for BRICS+ membership stand for displacing the dollar from the current system of international settlements, growing trade flows (including mutual), expensive loan and debt capital. This makes accelerated de-dollarization one of the most important goals of BRICSpansion.

And since BRICSpansion, which is a component of the fragmentation of the global economic space, is led by China, to which a number of emerging countries gravitate and which is practically ready to intensify de-dollarization, there are reasons to assert that China will continue to increase its presence on international economic and financial markets, while de-dollarization will be accompanied with yuanization.

Perhaps most eloquently, this is manifested through the system of global energy security, which is largely shaped by the war in Ukraine. Due to sanctions, the main consumer of Russian oil and gas – the EU – stopped imports from Russia. The excess supply, which led to a sharp decrease in the price of resources, was consumed by China. However, this does not solve the task of covering the long-term energy demand of China's growing economy (due to the risks of secondary sanctions of developed countries). 

Therefore, China is strengthening cooperation, primarily in the energy sector, with the Gulf states. In terms of imports, there are long-term contracts for the supply of crude oil and liquefied gas. In terms of export and technological cooperation - expansion of investment in production, storage and transportation of oil and gas.

To support the growing scale of cooperation in the energy sector, it will be necessary to introduce new fast financial instruments, primarily in the field of foreign exchange, minimizing the dollar "intermediation", in particular, through currency swaps. It actually means the formation of the concept of petroyuan - financial and payment instruments (to serve and secure extremely large financial assets so far in the bilateral relations of separate big countries), which will be based not on the dollar but on the Chinese currency - yuan. Say, Saudi Arabia owns the largest oil fields and reserves, China is the largest importer. Therefore, in case of active rapprochement between those countries (cooperation of the largest exporter and importer), they will switch to a mutually acceptable settlement system, possibly a unique one, at least the need for dollars for trade settlements will significantly decrease, which will strongly accelerate de-dollarization.

In fact, this means displacement of the dollar and curtailment of the dollarization processes (for two large emerging economies) will bring growth of the yuan's role in the world trade and investments, and with it, strengthening of yuanization processes. 

Effects on Ukraine. (1). Let's return to the divisions in G20 "by interest". In fact, those countries are divided into three groups: the leading developed countries, namely, the G7 (Great Britain, Italy, Canada, Germany, the USA, France, Japan) plus Australia; current BRICS member states (Brazil, Russia, India, China, South Africa) and candidates for BRICS membership (Argentina, Saudi Arabia, Turkey); and those outside the two alliances (Indonesia, Mexico, South Korea). For Ukraine, this division seems particularly important in view of who really supports the country fighting the aggressor.

Therefore, if we take it as a criterion of Ukraine's support for changes in global economic relations and new foreign exchange rules, this country should definitely not succumb to the phantom of de-dollarization.

(2). If the leading emerging countries achieve the desired goal in terms of "freedom" from dollarization, then, the "side" effect will include the weakening of the dollar, on the one hand. On the other, doubts about the stability of the global financial system will also increase. However, to this day, the dollar, in addition to being an understandable equivalent of value for almost all exchange commodities, performs a clear function of a "safe haven" in which many investments and capitals are stored in days of financial turmoil. Weakening such havens, reducing trust in them will certainly lead to a less predictable and more chaotic flow of capital among different (short-term) jurisdictions. Of course, in such conditions, the biggest losers will be those emerging countries that, in the absence of financial benchmarks (dollar ones, tested for decades), will not be able to hedge their risks. 

As a reminder: the danger for the global financial system and the world economy is that a weakened dollar can undermine the confidence of international investors in US financial assets (long-term bonds), and later, in the dollar as the main reserve currency, perhaps even, in US financial institutions as a whole . The absence of a universally recognized reserve currency will significantly reduce the confidence of international investors, and therefore - will affect capital flows, increase imbalances in the world economy, which will seriously slow down global economic growth.

(3). What do fragmentation and attempts to displace the dollar mean for Ukraine? Firstly, politically, the country shall not be subject to various manipulations and illusory benefits. The USA is the main strategic partner of Ukraine, and the dollar is the main financial instrument of its support. 

Secondly, in the short-term economic aspect, de-dollarization attempts (even successful ones for some countries) will remain invisible to Ukrainians. The fact is that now, Ukraine is in a special financial "mode". Long-term financial assistance is provided by countries and international institutions on special terms, conditioned by Russian aggression, and is more or less linked to the dollar or euro. None of those parties intends to change the established rules, practices and traditions yet.

In the long term, if the economic dynamics of the leading countries worsen, this will have immediate negative consequences for Ukraine - weakening of the unity and common position of the EU countries towards Ukraine, growth of contradictions among the leading developed countries, a general decrease in political and financial assistance for the defence and post-war reconstruction of the country.

Since the Ukrainian business and the population were, are and will remain dollar-oriented for a long time, the displacement of the dollar, if such a process begins in the world, will of course be seen as unfavourable, but it will not lead to a massive "resetting" of dollars, and therefore will not affect the macroeconomic stability or the purchasing power of the dollar in Ukraine.

Vasyl Yurchyshyn

Director, Economic Programmes

Born in 1955 in Kamyanets-Podilskyi.


T. Shevchenko Kyiv State University, Department of Cybernetics (1977).

Institute of Public Administration and Local Government at the Cabinet of Ministers of Ukraine (1994).

Professor in Public Administration. Author of nearly 100 scientific works.


In 1977–1993, worked at the Kyiv University as an engineer, research fellow and senior research fellow;

1994–1999 — head economic researcher at the International Centre for Policy Studies, Fund for Banking and Finance Development;

1999–2004 — Assistant Professor, Department of Economic Policy of the Ukrainian (currently, National) Academy of Public Administration, office of the President of Ukraine;

1999–2004 — Research Director at the Agency of Humanitarian Technologies, later — Agency for Social Analysis;

2002–2003 — advisor to the Minister of Economy of Ukraine;

since April, 2004 — Professor, Department of Economic Policy of the National Academy of Public Administration, office of the President of Ukraine;

since June, 2005 — Economic Programmes Director at Razumkov Centre.

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