For decades, the dollar has been used frequently in the Middle East, but that has begun to change. The Iraqi government announced that private business or companies will no longer do business in dollars. US authorities had been making it difficult for dollars to enter Iraq, apparently out of concern that too much money was being smuggled into the neighboring Iranian government, subject to sanctions but tacitly supported by many Iraqi politicians. This shortage of dollars has caused the volatility of the value of the Iraqi dinar.
looking for alternatives
In February 2023, Iraq had already announced that it would conduct business with China using the yuan, instead of the dollar.
Also, Saudi Arabia’s finance minister said his country was “open” to selling oil using different currencies, including the Chinese yuan. AND the Government of the United Arab Emirates expressed its willingness to negotiate with India in rupees.
Last year, Egypt announced plans to issue yuan bonds. It had already issued Japanese yen bonds.
On the other hand, several countries in the Middle East, such as Egypt, Saudi Arabia, the UAE, Algeria and Bahrain, have expressed their desire to join the BRICS bloc (Brazil, Russia, India, China and South Africa). Russia has already said that, at a forthcoming meeting, the group will discuss the creation of a new type of currency for trade between members.
The end of the dollar?
Is the dominance of the dollar in danger? New York Times. “Prepare for a multipolar world in terms of currencies, warned, for his part, the Financial Times. And Bloomberg wrote late last month that “De-dollarization is proceeding at an impressive rate“.
Currently, US dollars make up about 58 percent of the world’s official foreign exchange reserves, according to the Bloomberg article. In the late 1970s, the ratio was 85 percent.
However, most experts insist that the dollar’s abandonment is proceeding much slower than the latest headlines suggest. And this is certainly true when it comes to the Middle East.
Daniel McDowell, a professor of political science at Syracuse University in New York, does not rule out that one day the dominance of the dollar will fade. But, for the moment, he considers much of what is being said to be “symbolic and political. Any change we see will be marginal and slow.”
the ukrainian war
The experts consulted by DW agree that the war in Ukraine affects the situation. McDowell thinks that sanctions against Russia are a significant part of the debate. “The more the US uses the dollar as a foreign policy weaponmore of your adversaries will transfer their international economic activities to other currencies”, he says.
“Currently there is a lot of Russian money circulating in countries in the Middle East and Asia,” says Hasan Alhasan, a researcher at the Institute for Strategic Studies in London. “They are, fundamentally, countries that have decided not to join the US or European sanctions,” he explains.
Alhasan also puts forward a second reason why some Middle Eastern countries want to distance themselves from the dollar: “I think there is a sense that the United States is trying to rewrite the rules of the global oil market to hurt Russian interests, and that represents a strategic threat to Saudi Arabia”.
Maria Demertzis, a professor of economic policy at the European University of Florence, thinks, for this reason, that the move away from the dollar will continue as long as the sanctions do. But she reckons it won’t happen overnight. Even if some countries want to do without that currency, it will be more difficult to replace the settlement infrastructure provided by the dollar-based system, says the academic.
(ers/ms)
