Abuse of hegemony is why de-dollarization is trending

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The US Treasury building is reflected in the window of a souvenir shop in Washington, US, January 19, 2023. [Photo/Agencies]

Market expectations for the Federal Reserve to end interest rate hikes have picked up as core inflation data in the United States has dropped and the University of Michigan"s consumer confidence index fell from 67 in February to 62 in March, yet worries abound about the outlook for the US economy.

Former US Treasury secretary Larry Summers said on Friday that it is too early to say that the US has shaken off the financial woes caused by its rapid interest rate hikes. The US economy is likely to experience a serious recession as a result of the banking crisis, with little chances of a "soft landing". With recession expectations picking up, the factors supporting a strong US dollar are disappearing.

Ever since the Fed ended its ultra-loose monetary policy and turned to a radical rate hike approach, the international financial market has been in turmoil with many currencies depreciating sharply. That has forced many countries to reduce holdings of US Treasuries, diversifying foreign exchange reserve assets.

In mid-March, Russia"s central bank reported that the ruble and "friendly" currencies together accounted for 52 percent of Russian export settlements at the end of 2022, surpassing the share of the US dollar and euro for the first time on record. The members of the Association of Southeast Asian Nations agreed at the end of March to strengthen the use of local currencies in the region and reduce reliance on major international currencies in cross-border trade and investment.

On April 1, India and Malaysia agreed to settle trade in Indian rupees. Data show that the proportion of US dollar reserves and assets in global central banks" foreign exchange reserves has dropped from 65.46 percent in the first quarter of 2016 to 59.79 percent in the third quarter of 2022.

Despite its declining status, the US dollar still accounts for the largest share of global trade settlement, central banks" foreign exchange reserves, global debt pricing, and global capital flows. However, the abuse of the US dollar hegemony has led many countries to launch a "de-dollarization" campaign. The more the US dollar is used as a weapon, the faster it will be abandoned by other countries.

It"s unrealistic that some in the US want to safeguard the benefits brought by the US dollar as a leading international currency, but don"t want to shoulder corresponding international responsibilities.

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