Why Breaking Free from the US Dollar is Not as Easy as it Seems

De-dollarisation interest is on the rise due to financial fragmentation, but overcoming dependence on the US dollar is no walk in the park, according to former central bank of Malaysia governor Nor Shamsiah. The International Finance Forum (IFF) report highlights the trend of using regional currencies instead of the US dollar, which is a consequence of the adverse effects of US monetary tightening. However, despite efforts to internationalize the yuan, there is still no credible alternative to the US dollar. The IFF report also warns of the potential weaponization of financial sanctions, trade wars, and other restrictions, leading to global financial fragmentation. While the pursuit of regional currencies is driven by rising regional trade, Shamsiah emphasizes the need for countries to deepen the use of their own local currency in financial markets. The convertibility of the yuan remains a challenge for its internalization. American economist John Lipsky suggests that creating a truly credible alternative major currency would require significant steps and policies to reduce trade protection and vulnerabilities globally. He also advocates for a more rule-based international trading system with less protectionism and sanctions.