Fri Jan 20 2023 - It's too early to predict if the US dollar will truly surrender its place at the throne, but its power is certainly diminishing.

Is dollar dominance, the phenomenon of the US dollar planet-wide, finally waning? 

For the past few decades, the US dollar has reigned supreme, but recent signals have started to hint at the potential for change.

The dinosaurs may have become extinct long ago, but the US dollar looked like it was here to stay. After all, it boasted an ultra-dominant percentage of global foreign reserve holdings. It was peppered in every currency pair left and right.

The story started in 1944. In Europe, World War II was at its worst. In the midst of these uncertainties, 44 allies met in New Hampshire to create the 

. All nations agreed to adjust their currencies to the US dollar and fixed the dollar to gold. They believed that establishing a gold standard would lessen economic volatility worldwide. 

It just so happened that the deal created US hegemony over world trade.

In addition, President Richard Nixon negotiated with the Organization of Petroleum Exporting Countries (OPEC) in the middle of the 1970s to only trade oil in dollars in exchange for US military support. The result was the creation of the 

, a fourfold increase in oil prices, and the rest is history.

Since then, the US dollar has been the unquestioned global reserve currency for exchange. Agreements with Saudi Arabia and other Middle Eastern nations strengthened the global oil market's use of the dollar. The trading of dollar-denominated oil and gas futures solidified the US's status as the world superpower. 

In the 1990s, the euro emerged as a formidable rival, but dollar-based finance remained successful. Developing nations like China and Russia were forced to hold US Treasuries and build significant dollar reserves to protect themselves against currency risk. And while discordant forces like Muammar Gaddafi and Saddam Hussein of Iraq doggedly tried to undermine the petrodollar, their actions resulted in invasion, assassination, and destruction.

De-dollarization is a tendency that has been around for a while. In the 1990s, Latin America made an effort to abandon the dollar. Venezuela attempted to pay for oil in Chinese yuan in reaction to US sanctions. Chile evaded dollarization in general and de-dollarized in the 1980s. Iraq tried to sell oil in euros in the early 2000s, and Libya actively advocated for years to establish a pan-African gold standard.

Multiple geopolitical and economic elements are currently working to undermine the US dollar's hegemony.

 The scenario for the dollar was already a ticking time bomb due to rapid globalization. The supremacy of the US dollar is currently under threat from China's emergence as the next prospective economic superpower, Russia's exclusion from the dollar-driven SWIFT system, and a slowdown in the world economy.

The world's largest oil importer and exporter may challenge the US dollar's hegemony over the world oil market. Last year, China relied heavily on Saudi Arabia as its main source of crude. And because the US has become less dependent on Saudi oil in recent years as domestic production has soared, economic ties between Saudi Arabia and the US have deteriorated.

 as the top importer of Saudi oil. In 2020, Saudi Arabia 

 worth of oil. China accounted for $24.7 billion of that figure while the US imports were a mere $6.59 billion. China's Belt and Road Initiative has invested in Saudi Arabia, and Chinese investments reportedly reached $43.47 billion in 2021.

According to a Wall Street Journal article, Saudi Arabia is in discussions to sell oil to China and receive payment in yuan rather than dollars.

Dollars account for over 80% of all oil sales worldwide, and Saudi Arabia has only ever transacted in dollars since 1974. Therefore, if a Saudi-yuan deal were to be reached as Beijing seeks to challenge US dominance in the financial markets, it would strengthen China's currency at the expense of the dollar.

According to the Journal, the chances of a prospective agreement between Saudi Arabia and China has increased recently. Due to the Biden administration's hesitation to take further action in the Yemen civil war and its efforts to restore the Iran nuclear deal, the US's longtime Mideast ally has grown dissatisfied with the country.

Additionally, it was stated that the Saudi Crown Prince Mohammed bin Salam turned down a call request from Biden to talk about Ukraine and how to increase oil output amid Western sanctions against Russia.

The dollar's spot at the top might be in danger. Various factors have set off a seismic wave within the global financial geography. First, up-and-coming powers like China and India want a more credible alternative to trading in US dollars. It may mark their first steps to getting their respective currencies accepted as 

Nobody is predicting that the dollar will lose its dominance as the main form of exchange any time soon. As of now, the eurodollar market and the

US Treasury market offer depth and liquidity that no one else can match. Yet this could change in the future. Rising interest rates have strengthened the dollar, causing import bills of poorer economies to shoot up and triggering a global debt crisis. 

This might shake the global faith in the US dollar, and China's trading partners may become more amenable to trading in yuan.

Demands for a "peak dollar" have frequently turned out to be premature. But not very long ago, it was practically unheard of for nations to investigate payment methods that did not use US dollars or the SWIFT network, which is the foundation of the world financial system.

The impact of these events has sent shockwaves across the global economy. For instance, highly-rated government bonds in the US are seeing a drastic drop in demand. When the demand for the greenback dries up, its reign as a global reserve currency will be threatened. Even longtime US allies like EU countries and those in East Asia are beginning to diversify their reserves to the euro and local currencies.

So is dollar dominance fading? The answer isn't straightforward, but experts are starting to hedge their bets. 

It's too early to predict if the US dollar will truly surrender its place at the throne, but its power is certainly diminishing.

New World Order; Is Dollar Domination Fading?

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