Still no sign of a real de-dollarizzazione

Tech

Still no sign of a real de-dollarizzazione

De-dollarization has been talked about for years now.

The point is that nowadays there is a single fiat currency that dominates markets all over the world, and this is the US dollar.

Many people do not like it, but Americans do, and as long as the leading economy on the planet is the USA, it is really difficult to imagine that any other fiat currency could compete with the dollar.

The possibility of a de-dollarizzazione

In theory, a de-dollarizzazione would be possible.

By de-dollarization, we mean a strong reduction in the use of the US dollar (USD) for international transactions that do not involve the United States of America.

The USA, in fact, will certainly continue to primarily use their dollars for a long time to come.

However, the fact that even when international transactions occur between countries that do not include the USA, these are often conducted in USD, gives at least some food for thought.

For years now, several countries competing with the USA have been trying to free themselves from the need to use USD for their international transactions.

The problem is that in order to avoid using the dollar, it is necessary to use other currencies that have wide usage on a global level, and as of today, there simply arent any.

The alternatives to de-dollarization

According to the data reported by the website fiatMarketCap.com, the only currency in the world that surpasses the US dollar in market capitalization is the Chinese yuan.

To tell the truth, for about ten years now, China has tried to impose its CNY as an alternative to USD on a global level, but without success.

This is mainly due to the strength of the dollar, which in the last 10 years has appreciated by 16% against the Chinese yuan.

In other words, in the last 10 years, the yuan has weakened against the dollar, and this has certainly not helped to impose it on international markets as a possible alternative. On the contrary, in fact, this has made the American dollar even more attractive, becoming a sort of safe haven par excellence in the short term.

While on one hand it cannot be ruled out that this dynamic may reverse sooner or later in the future, the fact that China has proposed alternatives to the yuan for de-dollarization suggests that even they no longer believe that the yuan can replace the dollar in the short or medium term.

The only other two fiat currencies worldwide that have a market capitalization comparable to that of the US dollar are the Euro and the Japanese yen.

Although the Euro is also used for international transactions, it does not appear to be used when these occur between countries that are not in the Eurozone. The Japanese Yen, on the other hand, is primarily used in Japan.

The currency of the BRICS

In light of this, the only alternative that seems possible at the current state would be the common currency of the BRICS.

It should be noted, however, that such currency does not yet exist, and that within the BRICS, China dominates unchallenged.

Therefore, a possible common currency of the BRICS, in some ways similar to the Euro, would in fact be controlled by China, and not an independent non-state currency.

Just as China has not managed to impose its yuan for global international transactions in ten years, for now it seems unlikely that it will succeed with a currency that does not even exist yet.

Furthermore, although the hypothetical new BRICS currency is touted as a blockchain-based currency, in reality, it will most likely be based instead on centralized ledgers, just as the digital yuan launched by China a few years ago is.

In other words, at the current state, there is no fiat currency that is able to compete with the US dollar in international markets.

There are, however, several attempts underway to create an alternative, but so far none of these have produced concrete and effective results in this sense.

Bitcoin and the cryptocurrencies

In reality, a global currency not controlled by any State already exists.

It is about Bitcoin, which however is not at all a good transactional currency.

In other terms, BTC is primarily an investment asset, and not a good means of payment, due to various limitations that are advantages from the investors perspective, but disadvantages from the perspective of users who intend to spend it.

For example, in El Salvador Bitcoin is legal tender, alongside the US dollar, but the vast majority of payments continue to be made in USD.

However, criptovalute can play a role in this situation.

In fact, the so-called fully collateralized stablecoin in USD, such as USDT and USDC, allow easy use for anyone who owns a smartphone, even if they do not have a bank account or a fiat currency payment app.

For example, in Argentina the use of USDT is becoming increasingly widespread, due to its ease and convenience of use, but upon closer inspection, it is still US dollars, just in another form.

In fact, these very stablecoins, which dominate the crypto markets along with Bitcoin and Ethereum, are providing an additional contribution to maintaining the dominance of the US dollar in global markets.