I recall when Russia wanted to purchase oil from the UAE, but due to sanctions Russia can’t conduct the transaction in dollars (often or not is used as the intermediary). Instead the Dirham was used as a replacement currency to acquire it, however it involved exchanging each other’s currency. I mean, why can’t just countries use each other’s own currency to purchase oil to steer away from the petro-dollar?
In that case, counties will just exchange each other’s money directly (like for instance if Germany wants oil from Oman, then the transaction is done via Rial to Euro and vice versa) would that mean it’ll be a multipolar economy since each nation uses their own currency to pay for the imports rather than using US Dollars so much? That was the move BRICS used on them trying to not rely on USD a lot.
Other than the GBP and the Yen, it’s one of the most financialized currencies that is often used as “the intermediary” for conversions into other currencies and for international transactions. You’ll always have someone who will be willing to take your USD off you in exchange for product or another currency.
There are probably other alternatives (like the Euro and GBP) that could be used by these nations, but I’d imagine the USD has the least restrictions and the widest reach compared to each.
(This is also why the Yuan can’t replace the dollar, China places a lot of measures to restrict outflow of their currency to prevent capital flight)
I’m curious why China isn’t tempted to get the Yuan to become the reserve currency of choice. Why would that cause capital flight?
It’s infamously hard to invest in non-state-controlled assets in China - that’s one of the reasons why their domestic real estate industry became used as a financial asset more than housing; it was somewhat independent from government control.
In contrast, the USD largely has no regulations on how much capital enters or leaves the country, and private assets in places such as the New York Stock Exchange aren’t going to be seized by federal authorities on a whim.
The mega wealthy of China already have to jump through many hoops to move their fortunes outside of the nation to places where they can properly invest without CCP oversight, so if one day their currency did become financialized similar to the USD and was allow to flow without restrictions, the outflow would be immense and likely very damaging to their domestic economy.