De-dollarisation interest jumps amid financial fragmentation, but US dollar dependence not ‘a very easy thing to overcome’

The article titled 'Interest in moving away from the US dollar is growing, but it's not easy to overcome' discusses the increasing interest in de-dollarisation due to the escalating risks in global financial systems. However, political and financial leaders at a weekend forum stated that there isn't a credible alternative to the US dollar, despite efforts to internationalise the Chinese yuan. The International Finance Forum (IFF) report attributes the trend of using regional currencies instead of the US dollar to the negative effects of the US's unprecedented monetary tightening.

The US Federal Reserve has raised interest rates 11 times in 17 months, reaching a 22-year high in July. The IFF report suggests that de-dollarisation could be an unintended consequence of financial fragmentation. China is struggling to diversify away from US dollar assets due to a lack of viable alternatives. However, the rise in de-dollarisation could provide Beijing with an opportunity to further its plan of promoting the yuan overseas. The People's Bank of China (PBOC), however, indicates that there is still a significant journey ahead to challenge the dominance of the US dollar.

Financial sanctions could be weaponised, along with other forms of restrictions such as embargoes, trade wars, asset seizures, limiting access to capital and technology, and investment screening. These could eventually lead to global financial fragmentation, warns the report. The escalation of US-led financial sanctions against other countries has significantly raised concerns within emerging markets about 'currency weaponisation' and diversification away from US dollar-denominated assets.