Editor's note: Liu Chunsheng is an associate professor at the Beijing-based Central University of Finance and Economics. The article reflects the author's opinion, and not necessarily the views of CGTN.

Recently, China and Brazil reached a deal to trade in their own currencies, instead of the U.S. dollar, which has been the dominant currency in world financial systems since the end of World War II.

U.S. dollar is the most widely used currency for international transactions and the primary reserve currency held by central banks around the world. The dominance of the U.S. dollar has several reasons, including the economic and political power of the United States and the role of the U.S. dollar in global financial markets.

However, there are concerns about the U.S. dollar's stability and its role in the global financial system. The U.S. dollar's status as the world's primary reserve currency means that changes in U.S. monetary policy can have significant impacts on the global financial system. For example, the U.S. Federal Reserve's decision to raise interest rates in 2022 had a ripple effect on global financial markets, causing financial turmoil in emerging market economies.

The concentration of the global financial system on the U.S. dollar can also create instability. The U.S. dollar's dominance can create a "domino effect," where a crisis in one country can spread quickly to other countries as financial institutions around the world are interconnected through the use of the U.S. dollar. 

Moreover, there are concerns about the long-term sustainability of the U.S. economy. The country has a large national debt, and there are concerns about the U.S.'s ability to pay its debts in the long term. In addition, the rise of other global powers such as China and the increasing use of alternative currencies such as the euro and the Chinese yuan could challenge the U.S. dollar's dominance in the future. 

The abuse of economic sanctions by the U.S. government has also played a significant part in de-dollarization. Many countries have been subject to U.S. sanctions, which can have a significant impact on their economies. By reducing their dependence on the U.S. dollar, these countries can minimize the impact of U.S. sanctions.

Some countries view the dominance of the U.S. dollar as a threat to their sovereignty and independence. These countries see the dollar as a tool of U.S. foreign policy, which can be used to exert influence and control over other countries. By reducing their dependence on the dollar, these countries can assert their independence and reduce the influence of the U.S. on their economy.

The U.S. dollar has long been the dominant currency in international trade and finance, but this has meant that it is subject to fluctuations in value. Countries that hold significant amounts of dollars in their foreign reserves are exposed to currency risk, which can be costly and difficult to manage. By diversifying their reserves into other currencies, countries can reduce their exposure to currency risk.

The U.S. dollar's dominance in international trade can also create trade imbalances between countries. Countries that export goods to the U.S. often receive payment in dollars, which they must then convert into their own currencies. This can create demand for U.S. dollars, which can drive up the value of the currency, making U.S. exports more expensive and contributing to trade imbalances.

By reducing their dependence on the U.S. dollar, countries can reduce the impact of these imbalances on their economies. For example, the BRICS countries have signed bilateral currency swap agreements, which allow them to trade in their own currencies rather than the U.S. dollar. These agreements have reduced the need for the countries to hold large reserves of U.S. dollars and promoted currency diversity in the global economy.

As the world's second-largest economy and a major exporter, China has a significant interest in reducing its dependence on the U.S. dollar and promoting currency diversity. There are several ways in which China has been working towards this goal.

The trend towards de-dollarization is a complex and multifaceted phenomenon that reflects the changing dynamics of the global economy. The impact of de-dollarization on the global financial system is still unclear. Some experts have warned that a significant shift away from the U.S. dollar could lead to instability in the global economy, as the dollar has long been the dominant currency in international trade and finance.

While it is too early to predict the full impact of de-dollarization on the global financial system, it is clear that this trend is likely to continue in the coming years as countries seek to reduce their dependence on the U.S. dollar and promote greater currency diversity.

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