The World Bank, the International Monetary Fund and other international financial institutions must work towards a system in which no single nation issues and controls an international reserve currency. In such a new system, no nation would have to ultimately inflate its own money supply and will in order to provide liquidity to the rest of the world.
Also, under such a new framework, the international reserve currency basket would help to provide stability to the international trading community because the overall value of such a currency basket would not be the sole charge of any one nation.
There are, of course, other proposals for an international reserve currency that are not based on a lone nation's fiat monetary policies. A return to a classical gold standard or silver standard continues to be proposed in certain circles while some continue to favor a mixed metallic standard. Some have even decided to use the barter system.
Here, in the words of Russian President Valdimir Putin, that’s because “The dollar is ditching us," and we are not ditching the dollar. Making the case that aggressive US measures and sanctions against its rivals Russia, Iran, China and Venezuela are undermining confidence in the dollar.
The past year was full of events that inevitably split the global geopolitical space into two camps: those who still support using US currency as a universal financial tool, and those who are turning their back on the greenback. Global tensions caused by economic sanctions and trade conflicts triggered by Washington have forced targeted countries to take a fresh look at alternative payment systems currently dominated by the US dollar.
This includes China: The ongoing trade conflict between the United States and China, as well as sanctions against Beijing's biggest trading partners have forced China to take steps towards relieving the dollar dependence of the world's second-largest economy. In Beijing's signature soft-power style, the government hasn't made any loud announcements on the issue.
This also includes Turkey: Earlier this year, President Recep Tayyip Erdogan announced plans to end the US dollar monopoly via a new policy that is aimed at non-dollar trading with the country's international partners. Later, Turkey's leader announced that Ankara is preparing to conduct trade through national currencies with China, Russia and Ukraine. Turkey also discussed a possible replacement of the US dollar with national currencies in trade transactions with Iran.
This also includes Iran: A triumphant return of Iran to the global trading arena did not last long. Shortly after winning the US presidential election, Donald Trump opted to withdraw from the 2015 nuclear deal signed between Tehran and a group of nations, including the UK, US, France, Germany, Russia, China, and the EU. The oil-rich nation has once again become a target for illegal sanctions resumed by Washington, which has also threatened to introduce penalties against any countries that would violate the embargo.
Sanctions have forced Tehran to look for alternatives to the US dollar as payment for its oil exports. Iran clinched a deal for oil settlements with India using the Indian rupee. It also negotiated a barter deal with neighboring Iraq. The partners are also planning to use the Iraqi dinar and Iranian rial for mutual transactions to reduce reliance on the US dollar amid banking problems connected to US sanctions.
Lastly, President Vladimir has said the US is "making a colossal strategic mistake" by "undermining confidence in the dollar". Putin has never called for restricting dollar transactions or banning the use of US currency. However, Russian Finance Minister Anton Siluanov said earlier this year that the country had to dump its holdings of US Treasuries in favor of more secure assets, such as the ruble, the euro, and precious metals.
So far, these countries have managed to partially phase out the greenback from their exports, signing currency-swap agreements with each other. They have even proposed using the euro instead of the US dollar in trade with the European Union.
It is past time for other nations to follow suit. Iran, China, Russia, Iraq, India and Turkey are drafting a pact to boost the use of their national currencies in bilateral and international trade, underscoring their intent to cut their reliance on the US dollar. The development of a new international financial payments system could help address rising concerns over additional US sanctions and trade tariffs.
Looking back, this long-overdue and vital transformation of the global monetary system won’t happen overnight. But it is happening regularly and will most likely continue to happen.