What is De-Dollarization?

De-dollarization is the global trend of using alternative reserve currencies besides the United States Dollar (USD), which has been the dominant reserve currency used in international trading for nearly 80 years. The Chinese yuan and Russian ruble are currently seen as new upcoming alternatives to the US Dollar as a foreign reserve currency.

History of the US Dollar as Global Reserve Currency

The US Dollar became the standard global trading currency after the Bretton Woods Agreement was signed by 44 countries at the tail end of World War II. Initially, the US Dollar was pegged to US gold reserves, which in turn allowed other foreign currencies to be pegged to the price of the US Dollar.

However, in the 1970s President Nixon pegged the value of the US Dollar to relative gold prices since the shortage of US gold reserves could no longer keep up with the inflation of the US Dollar. However, the creation of the International Monetary Fund (IMF) and the World Bank (WB) helped stabilize foreign exchange rates and monitored global trading even after the collapse of the US gold reserves as the pegging standard, which allowed the US Dollar to remain as the dominant world reserve currency.

The Rise of Alternative Foreign Currency Reserves

Complex geo-political conflicts have contributed to the rise of alternative foreign reserve currencies, especially the Chinese yuan and Russian ruble. The economic and political shifts fueling the rise of the de-dollarization trend include:

• Chinese President Xi Jinping’s deal with Saudi Arabia in December 2022 in which crude oil, natural gas, and coal would be traded between the two countries in yuan, which has been dubbed as the ‘petroyuan’, a rival to the dominant ‘petrodollar’ trade between the United States and the Middle East.

• The ongoing war between Russia and Ukraine and its impact on the politics of global currency. In 2022, Russian President Vladimir Putin forbade the trading of Russian gas in other currencies except in ruble, as a response to the blacklisting of Russia in the SWIFT cross-border payment institutions in retaliation to Russia’s invasion of Ukraine. This forced nearby European countries to buy Russian gas exclusively in rubles via Gazprombank, a privately owned Russian bank.

• China’s support to Russia in the Russian-Ukrainian war, with China increasing its purchase of discounted Russian oil paid in yuan.

• The plan to create a new reserve currency pegged off the accumulated value of the BRICS alliance of the nations of Brazil, Russia, India, China, and South Africa as an alternative to Euro and US Dollar supremacy.

• French President Emmanuel Macron’s announcement of lessening its dependence on US Dollars, by avoiding interference in the tensions between US and China and signing an energy deal between France’s TotalEnergies and China National Offshore Oil Corporation (CNOOC) in yuan.

Preparing Ahead for De-Dollarization

Although the US Dollar is far from crashing overnight or anytime soon, a smart financial advisor, or any financially literate individual for that matter should not ignore this global trend towards de-dollarization and start making wise financial decisions and backup plans to protect his or her assets.

Diversifying assets is the key to staying in top shape amidst a rapidly changing global financial climate. Here are the top five tips to prepare yourself for de-dollarization:

1. Invest in alternative wealth assets. The best financial strategists always invest in other wealth products besides cash to diversify and grow their wealth. Buying precious metals and storing cryptocurrency are good alternative wealth assets you can add to your financial portfolio.

Precious metals like gold and silver are foolproof investments that remain stable and can be easily traded even in a financial market crash. Buy some gold or silver bars or coins from a reputable precious metals dealer and keep them in a safety deposit box in your home.

Cryptocurrency, on the other hand, is a very versatile asset that can be easily traded online and converted into any currency anywhere. There are many cryptocurrencies out there, but make sure to invest only in cryptocurrencies that are widely traded and have been around for at least five years, like Bitcoin, Ethereum, and XRP. Store your cryptocurrency in a cryptocurrency wallet or ledger. Keep backup copies of your wallet passphrases and store them and your ledgers in a safe place or safety deposit box at home.

• Open bank accounts in alternative currencies. It is also a good idea to open a bank account in an alternative currency other than US Dollar. Choose banks that have an option for multi-currency accounts. If possible, transfer all your existing bank accounts exclusively to a bank that offers multi-currency accounts, since it may become difficult for you to transact with a bank that offers only US Dollar accounts in the event of a bank freeze or meltdown.

• Invest in other foreign currencies. The easiest way to invest in other currencies is to buy stocks from other countries. Buy stocks from non-US stock market companies. Our financial advisors from The Cutten Group Tokyo Japan will help you determine the best foreign stocks to invest in, and guide you in the process of opening an international trading portfolio for foreign investments.

• Buy real estate in other countries. Buying real estate properties abroad is a good strategy that will not only help you diversify your financial assets but could also prove useful if you decide to move out of the United States. You could never go wrong with real estate, since its value always appreciates over time. The only drawback is that property laws vary per country, and it might be harder to buy real estate as a foreigner in some countries with stricter laws than in others.

• Consider having dual or even triple citizenship. Having multiple citizenships enables you to open bank accounts, buy property, and trade currencies in other countries more easily. Obtaining foreign citizenship takes significant time and adjustment, so make sure to choose a country that fits your overall lifestyle and goals besides your financial considerations.

The recent global economic and political shifts continue to impact our financial climate and will affect the way we trade in the years to come. De-dollarization doesn’t have to scare us if we know where and how to invest and diversify our assets in an increasingly changing and complex financial environment. Talk to a financial advisor at The Cutten Group Tokyo Japan to help you make the best investments and take control of your finances today.