China and Brazil have reached an agreement to abandon the U.S. dollar and trade using their own currencies, further fueling the de-dollarization trend gaining steam across the globe.
The deal will allow the two countries to conduct their massive trade and financial transactions directly rather than using the U.S. dollar as an intermediary.
“The expectation is that this will reduce costs… promote even greater bilateral trade and facilitate investment,” the Brazilian Trade and Investment Promotion Agency (ApexBrasil) said in a statement.
China — which has made similar deals with other countries like Russia and Pakistan — is leading the way for multiple nations to erode the U.S. dollar’s longheld status as the world’s reserve currency and reorganize the global order.
The deal could decrease demand for U.S. Treasury bonds, spiking costs for the U.S. government, which would make it harder for the U.S. to run trillion-dollar budget deficits.
The 1944 Bretton Woods Agreement established the U.S. dollar as the world’s reserve currency, making it the currency held by global central banks in large quantities and the primary currency in international transactions.
But within the past few decades, multiple countries (namely China and Russia) have sought to de-dollarize their economies, in part to shield their economies from U.S. sanctions, and to reduce their nations’ exposure to the effects of U.S. economic and monetary policy.
Global trade of the U.S. dollar has declined 20 percent over the last several years (from 71 percent in 1999 to 57 percent in 2021), while some experts predict a further slide to just 40 – 45 percent over the next two to three years.
Former Assistant Secretary for Public Affairs for the U.S. Department of the Treasury Monica Crowley recently warned of “catastrophic” consequences if the U.S. dollar loses it’s status and the global reserve currency.
“It’s really hard to overstate exactly how catastrophic the abandonment of the U.S. dollar would be as the world’s global reserve currency,” Crowley told Fox News. “But we’ve abused the privilege by wholly reckless monetary and fiscal policy so for many years, certainly over the last couple of years, which has really devalued the dollar. On top of that, now you do have this perfect storm of Biden’s weakness, his war on American domestic energy production, the Ukraine war, and as you point out, because of all of these things, we’ve got America’s enemies led by China, forming a new economic bloc.”
Crowley says that if countries like Saudia Arabia begin using other currencies to trade in oil, “there would be a complete implosion of the global economic system, but certainly the American economic system.”
She added, “And if that were to happen, you’d be looking at sky-high inflation just raging, Weimar Republic kind of inflation. If you think inflation is bad now, just wait. But more importantly, we would lose our economic dominance, and we would lose our superpower status.”
