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More Countries are Ditching the U.S. Dollar

Syria’s President says discarding the U.S. dollar for commercial transactions is increasingly necessary.

  • Bashar Al-Assad said countries must throw off “the shackles” imposed by the dollar.
  • Many countries are concerned about the power of the United States to weaponize U.S. dollars.
  • What are the effects of a strong dollar?

Syria ditches the U.S. dollar.

More countries are ditching the U.S. dollar. This emerging process is called de-dollarization. Syrian Arab Republic President Bashar al-Assad said it is necessary to discard the U.S. dollar in international transactions and adopt the Chinese yuan. The ruler made the remarks on Saturday, April 29, during his meeting with the Chinese government’s special representative for the Middle East, Zhai Jun.

Al-Assad said that countries should eliminate “the shackles of trading with the U.S. dollar, something that the BRICS countries [Brazil, Russia, India, China, and South Africa] can lead. Moreover, al-Assad believes that the Chinese yuan is the currency that the BRICS countries should choose to trade with each other, remembering that multilateral cooperation drives this initiative.

The al-Assad regime has been subject to U.S. sanctions since 2011. In December 2019, President Donald Trump ordered more drastic sanctions affecting all Syrian and non-Syrian actors that trade with the Assad regime or provide humanitarian aid. The expanded sanctions target sectors such as construction, electricity, and oil. In short, all the essential sectors Syria needs to restore an economy battered by a 12-year-long wave of violence.

On the other hand, Syria, which has deep and lasting ties with the Lebanese economy, has also suffered directly from Lebanon’s economic crisis.

More countries discard the U.S. dollar.

Concerned about the ability of the United States to turn the U.S. dollar into a weapon to impose sanctions, a growing list of countries are discarding the U.S. currency for the payment of their international commitments. China, Brazil, Russia, India, Saudi Arabia, the United Arab Emirates, Argentina, Indonesia, and Syria are establishing cooperation to reduce their dollar dependency. 

These countries seek alternatives, such as bitcoin, gold, or yuan, to diversify their international trade currencies. With China leading the way, all indications are that the strategy of de-dollarizing the economy is bearing fruit, as the yuan recently surpassed the dollar for the first time in the Asian country’s cross-border trade.

In short, many countries are exploring methods to trade without the U.S. currency, driving the de-dollarization of the world economy. This situation creates uncertainty about the possibility of the asset maintaining the dominance that has allowed it to rule the financial world for almost eight decades.

The effects of a strong dollar in the U.S.

When the dollar gains strength in foreign countries, it can significantly impact domestic and international economies. The dollar’s value affects various global trade and commerce aspects.

One of the most notable effects of a stronger dollar is that it can lead to lower inflation rates and increased purchasing power for American consumers abroad. A stronger dollar means that foreign currencies are worth less in comparison, making goods and services cheaper for Americans traveling overseas. Additionally, when the dollar is strong, it can make imports more affordable for American consumers. Foreign producers can sell their products for less when they convert their earnings back into their currency. A strong dollar can benefit American consumers, who can purchase more goods for less money.

However, a stronger dollar can also adversely affect American businesses that rely heavily on foreign trade. A stronger dollar makes American exports more expensive for foreign buyers, which can decrease demand for American-made goods. Additionally, when imports become cheaper due to a stronger dollar, American businesses may need help to compete with producers abroad who can sell their products for less, leading to job losses in specific industries and decreased economic growth. All these effects affect the Balance of Trade.

A strong dollar and foreign investment

Despite these challenges, a stronger dollar can also attract foreign investment and boost the overall strength of the U.S. economy. A stronger dollar makes U.S. assets more attractive to foreign investors, who can purchase more for their money when the dollar is strong. Additionally, a stronger dollar can help stabilize global financial markets, as investors see the U.S. as a haven for their money during economic uncertainty.

It is crucial to fully understand the positive and negative effects of a strengthening dollar to understand its impact on the global economy. While a stronger dollar can increase purchasing power for American consumers abroad and attract foreign investment, it can also adversely affect American businesses that rely heavily on foreign trade. As such, policymakers must cautiously consider the potential consequences of a stronger dollar when making decisions that affect the U.S. economy and global business.

U.S. rising interest rates

When the United States raises interest rates, it can ripple effect on other countries. Higher U.S. interest rates can make the U.S. dollar more robust, which can weaken other currencies, leading to higher borrowing costs for countries with weaker currencies and a decrease in demand for their exports. Additionally, if investors see higher returns in the U.S. due to higher interest rates, they may pull their investments from other countries, causing their stock markets to decline. Overall, the effects of the U.S. raising interest rates can be significant for other countries, particularly those with weaker economies.

Could the international community abandon the dollar?

Countries around the world can abandon the dollar as their primary currency. However, it is a complex process with significant economic and political consequences. China and Russia have already taken steps to shift away from the dollar, which has increased their use of their currencies in international trade. Ultimately, abandoning the dollar depends on each country’s circumstances and goals.

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