Dedollarization of the United States (US) has become a hot topic since the BRICS trade alliance revealed its plans to start leaving the currency of the dominant country. Dedollarization is the process of replacing the use of the US dollar as the main currency used for oil trading and international trade agreements. At the international forum Consensus 2023: A 10-Year Rollercoaster Toward a New Model of Money, which took place in Austin, US, CEO Circle, Jeremy Allaire, put forward two solutions that could preserve the US dollar’s dominance in the world and stop dedollarization.
CEO Circle, Jeremy Allaire, revealed that the issue of dedollarization has emerged due to declining public trust in US banking. On the other hand, he sees that the US dollar-backed stablecoin has the potential to save the global dominance of the US dollar. He stated that the dedollarization trend is a reaction to the 2008 global financial crisis. He also mentioned that the bankruptcy of Silicon Valley Bank (SVB) serves as a reminder for crypto companies, including Circle, about why they were founded ten years ago.
Two Solutions to Save the US Dollar from Dedollarization
According to Allaire, there are two solutions that can be implemented to increase the security and competitiveness of the US dollar. First, the US dollar must be released as the original data type on the internet so that it can be accessed and integrated openly. With better integration between the US dollar and digital technology, financial transactions can be carried out more easily, quickly, efficiently, and transparently.
Second, the IOU (I Owe You) risk from the underlying bank loans of electronic money must be eliminated, and payment tokens must be separated from lending tokens. Currently, electronic money stored in banks is usually associated with loans given by banks to customers. Therefore, if the bank goes bankrupt, the electronic money stored by the customer can also be at risk. To avoid this, the IOU risk must be eliminated. In addition, payment tokens such as credit cards must be separated from lending tokens.
Stablecoin in the View of the US Federal Regulators
In a November 2021 report by the Department of Finance, the government stated that stablecoin plays an important role in maintaining market stability and the US financial system, but also has the potential to pose systemic risks if not regulated properly. Therefore, the government feels it is important to ensure that stablecoins are supported by safe and liquid assets, such as cash and US government securities, to reduce risk and increase public trust.
Countries that are Leaving the US Dollar
One of the founders of BitMEX, Arthur Hayes, recently published an essay saying that global dedollarization might become a reality. Many international agreements indicate that countries are looking for alternatives to reduce their dependence on the US dollar. China and Brazil have agreed to reduce their use of the US dollar and switch to their respective currencies, the yuan and the real. The value of the agreement is estimated to be US$171 billion.
In addition, the BRICS trade alliance, consisting of Brazil, Russia, India, China, and South Africa, is preparing to leave the US dollar and the European euro in inter-country transactions. This plan has been initiated since 2009 and has been resurrected after Western sanctions against Russia for the Ukraine attack. Furthermore, India has started to increase its use of the rupee in trade by signing agreements with 17 countries, including Malaysia and the United Arab Emirates.
Several countries in Southeast Asia, such as Indonesia, Thailand, Malaysia, Singapore, and the Philippines, have also agreed to use local currency transactions (LCT).
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