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In order to de-dollarize the world economy, governments would have to collectively cut off political and economic ties with the US, political scientist Carla Norrlöf wrote in Project Syndicate.
But that's unlikely to happen, as global economies benefit from the dollar's supremacy, which infiltrates everything from global finance, trade, and monetary policy, she said. During financial crises, it also offers economies a liquidity lifeline.
"So long as self-reinforcing synergies and forms of opportunism continue to prevail, narrowing the yawning chasm between the dollar and other currencies will remain difficult," Norrlöf, who is a political science professor at the University of Toronto and a scholar at the Atlantic Council, wrote.
Threats to the dollar's dominance do exist, and de-dollarization isn't impossible, she acknowledged. The idea has seen more momentum amid growing tensions between China, Russia, and the West, as well as global discontent over the dollar's use in sanctions.
Meanwhile, the BRICS bloc of emerging markets has voiced plans to create an alternative world currency.
But coordination is an essential requirement for de-dollarization to occur, whether led by a few major economies or an assemblage of smaller ones.
On its own, one economy could not overthrow the greenback, and it's unlikely major economies — except China — would join, while smaller economies would also be reluctant to abandon the dollar, she added.
"To bring about a dollar collapse and forge a new world order in which the greenback plays a diminished role would require all users to break these network effects and suffer the consequences," she said. "Governments would need to sever economic and political ties to the US. To fulfill the BRICS' pledge to create an alternative reserve currency and payment system, for example, many of its members would have to stop relying on US liquidity and consumer demand."
Major markets would be more eager to shed the greenback if a strong enough alternative existed that could provide it with the same benefits. But despite efforts to promote currencies such as the Chinese yuan, currently no other tender can take on the dollar's role.
Compared to its largest rival, the euro, the greenback outperforms it in nearly every aspect, from its share of reserve currencies to use in cross-border lending.
A de-dollarization collective is also unlikely as countries would lose access to the US security guarantee, Norrlöf said. Even governments who are not direct beneficiaries of American defense would hesitate to worsen relations with the US, a leading military power.
"For governments, unplugging from the dollar system also means disconnecting from all that the US has to offer, including liquidity provision, consumer demand, dollar-swap lines, and a security umbrella," she wrote. "Currency dominance is sticky."
