Argentina dumps US dollar for Chinese yuan: How nations are jumping on the de-dollarisation bandwagon

The king of currency, the dollar, is on shaky ground. In this past one year, there’s a growing trend of countries sidestepping the US dollar and choosing to use their own local currencies for bilateral trade.

The de-dollarisation process – moving away from trading in the dollar and instead choosing local currency – has received a boost after the Russia-Ukraine war and as Washington’s tensions with Beijing rise even further.

In South America, China’s yuan has made greater inroads. After Brazil agreed to trade with China in the local currency, Argentina, on Wednesday, too agreed to the same. The South American country announced that it would pay for Chinese imports in yuan rather than dollars, in a measure to save the country’s dwindling dollar reserves.

As per a Reuters report, Buenos Aires said that it aims to pay $1 billion of Chinese imports in yuan instead of dollars and thereafter around $790 million of monthly imports will be paid in yuan.

As an increasing number of countries move away from the dollar, let’s take a better look at what exactly is de-dollarisation, which countries are practising it and is it a viable strategy.

De-dollarisation explained

Before we delve into de-dollarisation, one has to understand how the dollar became the acknowledged currency for international trade.

After World War II, the US dollar replaced the British pound as the dominating currency worldwide. In 1944, the Bretton Woods Agreement established the dollar as the world’s reserve currency. The original Bretton Woods Agreement is dead, but the dollar remains the international reserve currency.

This means that contracts for commodities like crude oil and natural gas are almost always priced in dollars. This, in turn, gives Washington economic powers beyond belief. It is because of the dominance of the dollar, or greenback as it is called, that Washington has been able to freeze half of Russia’s foreign currency reserves and also ban it banks from the SWIFT payment system in the aftermath of Vladimir Putin’s invasion of Ukraine in February 2022.

Now, de-dollarisation is the process of reducing dependency on the dollar and effectively weakening US’ global position. Several countries are undertaking this process because they would like to call a halt to dollar hegemony. They believe that the dollar has long given Washington a disproportionate amount of influence over other economies and they would like to put a stop to it.

If you still don’t understand de-dollarisation, an influencer on TikTok has explained it, using the famous movie Mean Girls as a reference.

The f did I just watch?