The global economy is moving from unipolar to multipolar. The\nunipolar world is marked by the dominance of the United States (US) with\nits dollar as the sole dominant currency in international\ntransactions.<\/p>\n
Meanwhile, the multipolar world positions the US no longer as the\nsole player (monopoly). Other countries are involved in controlling the\nglobal economy with their respective currencies. The candidates are the\nEuropean Union with the euro and China with the yuan.<\/p>\n
The discourse on the end of US dollar dominance was triggered by US\nsanctions against Russia following the annexation of Crimea, Ukraine in\n2014. This forced Russia to stop using the US dollar in its\ninternational transactions. The Russian government then switched to\nusing the Chinese yuan.<\/p>\n
This situation was exacerbated by the behaviour of US President\nDonald Trump, who imposed extra high reciprocal tariffs on several\ncountries, including those in the BRICS group: Brazil, Russia, India,\nChina, and South Africa. This prompted Brazilian President Lula to\npropose the creation of a common currency for BRICS countries.<\/p>\n
Historically, the British pound sterling was the dominant currency in\ninternational transactions until the late 1930s, the beginning of the\nSecond World War. The role of the British pound sterling faded since the\nFirst World War because the British government faced financial\ndifficulties, selling assets to finance the war and facing competitive\npressures from other currencies.<\/p>\n
During that period, the British government\u2019s debt increased sixfold\nto 130 per cent of Gross Domestic Product (GDP). The risk of debt\ndefault rose. Debt costs increased, with the yield on British government\nbonds rising as prices fell.<\/p>\n
Until the Great Depression period in the 1930s, the British pound\nsterling remained the dominant currency in international transactions.\nIts role was completely replaced by the US dollar after the Second World\nWar. The pound sterling was devalued in 1949.<\/p>\n
The end of the golden era of the pound sterling marked the beginning\nof the global dominance of the US dollar. The momentum came at the\nmeeting of around 700 delegates from 44 countries in 1944 in Bretton\nWoods, New Hampshire, US.<\/p>\n
That meeting gave birth to the Bretton Woods Agreement. This\nagreement became the starting point for the US dollar to replace the\nrole of the British pound sterling as the dominant global currency. To\nthis day, the dominance of the US dollar in the global financial system\nhas lasted more than 80 years.<\/p>\n
The Bretton Woods meeting gave birth to the Bretton Woods System\n(BWS), a foreign exchange system that links each country\u2019s currency to\nthe US dollar. There were 44 countries that agreed to convert their\nforeign exchange reserves into US dollars.<\/p>\n
Factually, after more than 70 years, the world index of international\ncurrency usage shows a decline in the role of the US dollar as the\nworld\u2019s primary currency. The US dollar usage index fell from 61 in 2015\nto 59.65 in 2025.<\/p>\n
In contrast, the usage index for the European Union\u2019s euro and\nChina\u2019s yuan has increased. The euro usage index rose from 29.94 in 2015\nto 30.22 in 2025. Similarly, yuan usage rose several-fold from 0.95 in\n2015 to 2.85 in 2025.<\/p>\n
The yuan usage index does not align with China\u2019s dominance in global\ntrade. In the early 2000s, China\u2019s international trade value was US$474\nbillion, four times smaller than the US international trade value of\nUS$2.0 trillion.<\/p>\n
However, since 2012, China\u2019s international trade has surpassed that\nof the US. By 2024, the US international trade value is US$5.3 trillion.\nThis is smaller than China\u2019s international trade value of US$6.2\ntrillion.<\/p>\n
This situation contrasts with the use of the Chinese yuan as a global\nforeign exchange reserve, which is only US$1.95 trillion in 2025.\nMeanwhile, the use of the US dollar as a global foreign exchange reserve\nreaches 56.77 per cent. This is a decline of around 14.42 per cent over\nthe last 10 years from 71.19 per cent.<\/p>\n
So, the question is, is the transition from a unipolar world\nmonopolised by the US with the US dollar to a multipolar world\naccelerating due to the US and Israel war against Iran and Trump\u2019s\nreciprocal tariff policies? Will the Chinese yuan become the dominant\nglobal currency? What are the implications for Indonesia?<\/p>\n
In line with US senior economist Nouriel Roubini in May 2023, who\nstated that the global foreign exchange reserve system is undergoing a\nchange, from unipolar dominated by the US dollar to multipolar with\nthree or more major global currencies, namely the US dollar, the\nEuropean Union\u2019s euro, and China\u2019s yuan.<\/p>\n
These three economies contribute nearly half of global trade, around\n45 per cent. The US economy contributes about 13 per cent, China 15 per\ncent, and the European Union 17 per cent to world trade in 2024.<\/p>\n
Furthermore, regarding the role of the Chinese yuan in international\ntransactions, it will not displace the US dollar as the dominant\ncurrency in the short term. This is related to China\u2019s central bank\npolicy that controls its capital flows.<\/p>\n
Capital control policies give rise to issues of freedom to convert\nyuan assets to assets in other currencies. China\u2019s central bank oversees\ncurrency conversions from yuan to US dollars or others. Or vice versa,\nfrom US dollars to yuan.<\/p>\n
This policy is based on the impossible trinity or monetary policy\ntrilemma framework, which states that a country cannot achieve three\nobjectives simultaneously: exchange rate stability, monetary policy\nindependence, and freedom of capital flows.<\/p>\n
Capital control policies hinder China with the yuan from becoming a\ndominant global player. In this regard<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/the-erosion-of-us-dollar-hegemony-1776851551", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }