A trend towards de-dollarization of the global economy in which the US dollar ceases to be used as the world's reserve currency for international transactions confronts some of the existing structures of international economic law, built upon the rules set out by US-led organizations like the WTO, the IMF, and the World Bank. This article will consider the legal impediments which could frustrate de-dollarization initiatives as well as potential ways that the framework of international economic law could facilitate this process. It will explore how trade and monetary law have prohibited currency manipulation, how international investment law has promoted currency exchange, the importance of the lending activities of new development banks, and the extent to which modern digital trade agreements may usher in digital currencies which could undermine dollar dominance. The various legal challenges which could be raised by de-dollarization suggest that this process, should it occur, will probably be gradual and multi-polar with numerous alternatives to the US dollar playing roles in a dynamic, if unstable global economy.
Policy implications
- De-dollarization is not expressly prohibited by international economic law, therefore there is some latitude for states to take lawful policy steps to either induce it or prevent it.
- International trade treaties, along with the IMF, prevent currency manipulation and promote free currency exchange, which would appear to limit countries' various measures to alter the exchange value of currencies on international markets, although the extent to which these facets of international law genuinely constrain currency manipulation is unsettled
- Development bank lending policies which enable sovereign loans denominated in currencies other than the US dollar, could pave the way towards greater use of alternative currencies.
- Digital trade treaties, in as much as they foster the use of new financial technologies and promote the free flow of data, could encourage take-up of digital currencies, which could ultimately displace the US dollar's hegemony.
Photo by MART PRODUCTION