Editor's note: Hu Zhihao is a professor at the Institute of Finance & Banking, and deputy director of the National Institution for Finance and Development, Chinese Academy of Social Sciences. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

In recent years, cross-border trade and financial transactions in non-U.S. dollar currencies have moved to the fore, and it is not difficult to see that a global de-dollarization front is quietly forming from Asia to Africa and then to South America. The BRICS countries are clearly becoming the core of this evolution, and many emerging economies in the Middle East and Southeast Asia are also playing an important role. This phenomenon directly reflects the fact that the world today is undergoing a process of unipolar to multistage transformation. In economic terms, the Western developed economies represented mainly by the Group of Seven and the emerging economies represented by the BRICS+ are facing a new balance between resource allocation and benefits, and de-dollarization is the beginning of this adjustment process in the monetary field.

The de-dollarization is the result of multiple factors working together. First, as a world currency, the U.S. dollar still faces the Triffin dilemma of balancing liquidity and stability, even under the credit standard. In fact, the United States has always focused on adapting its own liquidity arrangements, while shifting the burden of monetary stability onto other economies. Second, the financial disturbances brought about by the U.S. have put it out of sync with the external economic cycle. Although the United States has a significant impact on the economic cycles of other countries around the world, it is impossible to achieve complete synchronization between economic cycles among countries. Once there is a cycle mismatch, the monetary and financial policies dominated by the United States will inevitably cause disturbances to other economies. Third, the hegemony of the U.S. dollar has been indiscriminately abused. Relying on the hegemony of the dollar, the United States has directly weaponized many financial means, which has seriously eroded the credit of the U.S. dollar. For some countries, de-dollarization is not only an economic and financial issue, but also a sensitive and complex geopolitical issue.

Of course, it should be noted that the formation of the dollar's position today did not happen overnight. Moreover, once the dominant currency position is established, it will form a strong network stickiness. Any new currency that wants to replace the U.S. dollar will not only be under pressure from the United States, but will also be involved in the original international monetary system. In reality, there are still some countries that have to hand over their financial dominance to the U.S. dollar due to domestic political and economic difficulties. For example, countries such as Zimbabwe, Venezuela, and Lebanon have experienced varying degrees of dollarization after experiencing hyperinflation and currency collapse. This dollarization is not entirely dominated by political will, but largely due to the natural selection of the market, reflecting the path dependence of the international monetary and financial system.

Although the U.S. dollar is expected to remain dominant for a period of time, the increasing number of bilateral payment routes and the development of advanced technologies such as digital currencies will continue to erode and shake the foundation of the U.S. dollar. It should be pointed out that de-dollarization is not equivalent to abandoning the U.S. dollar or establishing a new king's banner. The current emergence of de-dollarization, in essence, is de-hegemony of the U.S. dollar, which means reducing excessive dependence on the U.S. dollar in areas such as trade, settlement, and reserves, increasing the proportion of domestic currency or other foreign currencies used, thereby enhancing the economic and financial resilience of various countries, and promoting the transformation and upgrading of the international financial system, to ultimately meet the inherent requirements of sustainable development of the world economy. In the future, the global economy will also face a wave of digitalization and low carbon initiatives, which is bound to pose a severe challenge to the existing international monetary and financial system. Instead of sticking to its hegemonic position, the United States should actively join forces with other countries to embrace a new future.