LeoGlossary: De-Dollared vs De-Dollarization
There is a difference between being de-dollared and de-dollarization. It can often look the same but it is comes down to the supply and demand for the US dollar.
De-dollarization is when a country, or its population, decides to move away from the USD as a medium of exchange. It also could see an unloading of dollar denominated asset and the making of loans in another fiat currency.
This is a choice that is willingly made.
De-dollared is when a country is forced to operate in another currency. The availability of US dollars is simply not there. As the global financial engine seeks funding, there simply not enough to go around. This means that the bond market is tapped first, as US Treasuries are liquidated. It is usually the central banks leading the charge as they are the ones responsible for feeding the commercial banks the dollars it needs.
Russia began to de-dollarize in 2018. This was a conscious choice to move away from the USD for its holdings. U.S. Treasuries were sold off in an effort to avoid the US Government's influence over Russian holdings. We also saw USD denominated assets reduced.
Starting in 2022, China and Japan found themselves being de-dollared. While there was speculation that these countries, especially China, were trying to decouple from the United States, the reality is the USD shortage dating back to the Great Financial Crisis was having an impact. As bank balance sheets were being constrained, the ability to keep financing global operations suffered. While the overall demand for dollars increased, the supply of money in this denomination, in its many forms, dwindled.
This happened to many of the European countries starting in the middle of the last decade as negative interest rate policy by the European Central Bank (ECB) started to take its toll on the different financial institutions operating in the international markets.
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Posted Using LeoFinance Beta
