The US dollar is one of the world’s most significant currencies. It is important to remember that it serves as the primary reserve currency for many central banks worldwide. This suggests that governments and financial institutions keep large sums of money to ensure liquidity and economic stability.
Furthermore, many international transactions, particularly those involving commodities like oil, are conducted in dollar bids. This makes it essential for economies around the world, regardless of local currency.
Dollar bids will be completely banned in these territories after the CIS summit
Despite its importance in global markets, recent news has revealed that several countries have decided to stop using it in cross-border transactions. Eleven countries would stop using that currency in order to strengthen their currencies, reduce their reliance on the dollar, and gain a competitive advantage in foreign exchange markets.
After the United States imposed sanctions on Russia during the conflict in Ukraine, the de-dollarization movement gained traction, with the Commonwealth of Independent States (CIS) becoming the first nation to stop doing business.
The decision was made at the CIS Summit, which took place in early January and saw each country’s presidents sign an agreement to create a new financial environment. The countries that would abolish the currency are as follows:
- Armenia
- Turkmenistan
- Uzbekistan
- Azerbaijan Azerbaijan
- Belarus Belarus
- Moldova
- Russia
- Tajikistan
- Kazakhstan
- Kyrgyzstan
De-dollarization also represents a significant shift in the financial system, reducing American influence over the global economy while creating new, locally based markets.
Reducing a country’s exposure to the dollar can make it less vulnerable to US currency fluctuations, such as sharp shifts in value caused by US policies or economic crises. Furthermore, the country can boost confidence in its currency by encouraging the use of local currency rather than the dollar.
This could result in a positive feedback loop that boosts domestic investment, savings, and economic growth. Finally, de-dollarization may make it possible to enter into commercial and financial agreements in local or foreign currencies. This can help diversify revenue streams and strengthen relationships with regional business partners.
US dollar rises amid trade war concerns
On Monday, Donald Trump imposed massive tariffs on China, Canada, and Mexico, and he warned that the European Union would be targeted “pretty soon.” As a result, Asian and European stock markets fell, while the dollar rose. The Year of the Snake began with a dramatic drop in Asia.
Seoul, Jakarta, and Tokyo all lost more than 2% of their value, while Sydney, Bangkok, and Wellington all lost more than 1%. Furthermore, Hong Kong suffered significant losses early on before recovering slightly, while Singapore and India also experienced declines. Shanghai was closed for the holiday.
Frankfurt and Paris both fell nearly 2%, while London opened more than 1% lower. It was not surprising. Even though it has been predicted for weeks, investors will be rattled as markets adjust to a decision that is widely regarded as harmful to financial stability and global growth, according to Stephen Innes of SPI Asset Management.
On the currency markets, the dollar rose 2.3% against the Mexican peso and more than 1% against the Canadian dollar and euro. Furthermore, it was significantly stronger than the South African rand, Australian dollar, and South Korean won.
According to MUFG’s Michael Wan, the path of least resistance at the moment is for risk assets and Asian currencies to fall, along with higher risk premiums, to account for any significant tariff moves in the future that go beyond what we have seen so far.
Gold fell after reaching a new high above $2,800 last week, as investors in other currencies found it more expensive to purchase the metal due to the stronger dollar.
