US Policy on Dollarization of the World Economy

Chuvakhina L,Nasirbeik A,Ivanovskaya Ivanovskaya

doi:10.13189/ujaf.2021.090434

Chuvakhina L, Nasirbeik A + Show 1 more

Open Access

https://doi.org/10.13189/ujaf.2021.090434

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Abstract

In its essence and content, dollarization is one of the keys and most significant phenomena of modern dynamically developing international monetary and financial relations. There are different theoretical approaches to determining the economic essence and content of the complex and contradictory phenomenon of dollarization. Different scientists have investigated the monetary nature of this phenomenon and have given a comparison of the concepts of official and partial dollarization, based on the degree of economic coverage of dollarization. In this research the process of official dollarization is considered on the example of Eurasian Economic Union (EAEU) member states. The paper examines the scale of financial dollarization in the EAEU member states, where, due to the loss of residents' confidence in the monetary policy and the national monetary unit, the functions of the national currency are partially replaced by the US dollar. Furthermore, the role of the US Federal Reserve in the implementation of dollarization of the foreign economies is analyzed. The article substantiates the intention of the US Federal Reserve to take steps to dollarize the foreign countries' economy in the context of the started process of de-dollarization of the world economy. The most active supporters of de-dollarization are Russia, China, and Iran. Their efforts are aimed at weakening the dominant position of the dollar as a key reserve currency, the currency of international settlements. In the current condition of the world economic development, it is unlikely to expect a weakening of the position of the US dollar, given the role of the US dollar in the trade of oil and petroleum products. The petrodollar system is the basis of the US dominance in the global financial system and the key to the stability of the US dollar. As a result, countries are forced to buy dollars in order to be able to purchase oil on the open market. While the demand for the US dollar will remain at a high level, it is not necessary to talk about the success of de-dollarization and the transition from an American-centered monetary and financial system to a polycentric one in the near future.

Highlights

In the context of increasing financial globalization, the processes of dollarization of the world economy have been intensified
The level of financial dollarization in the Eurasian Economic Union (EAEU) member states is significantly higher in comparison with other European states, which is explained by higher inflation, macroeconomic volatility, strict control over the exchange rate, and the growth of foreign currency deposits
We can speak about real de-dollarization only within the framework of the EAEU, since Russia, placed under strict sanctions, will be forced to reduce its dependence on external factors for the development of the domestic economy, while at the same time leading its partners in the EAEU in this direction

Summary

Introduction

In the context of increasing financial globalization, the processes of dollarization of the world economy have been intensified. Dollarization distorts the national economy of the state, increases the dependence of the financial system on the monetary policy of the US Federal Reserve. The processes taking place in the world economic system prove that the level of dollarization of the world economy remains very high, which contributes to the strengthening of the US dollar, despite the intentions of a number of countries to weaken the position of the US currency and neutralize the efforts of the US Federal Reserve to create a global dollar zone. In the conditions of the current crisis caused by COVID-19, we can expect that the question of dollarization of national economies will gain much more attention, given the financial problems that many countries will face in the near future. The aim of this study is to analyze the current position of dollar in the selected countries like Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia

Theoretical Aspects of the Study

Research

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