Within the last decade, a multitude of events have disrupted the global economy in unprecedented ways. The outbreak of the COVID-19 pandemic, the Russian war on Ukraine, surging inflation fueled by high food and energy prices and the impact of the climate crisis all present unique challenges, particularly within the global financial sector, requiting practicable solutions. Consequently, the world output growth is currently predicted to decline from an estimated 3% in 2022 to 1.9% in 2023, making it one of the lowest growth rates in recent history, according to the United Nations World Economic Situation and Prospects (WESP) 2023. Alongside these struggles, the US dollar’s role within the global economy has been brought under question, particularly as geopolitical risks and economic dynamics have heightened the need to replace the USD. The impetus behind this shift was for economic reasons – largely, to combat the impact of a strong dollar on local currencies (as the US hiked interest rates to curb inflation) and thereby, curb capital flight. On the other hand, moving away from the USD is driven by geopolitical considerations too – namely, to reduce the risk of exposure to sanctions and potential freezing of USD reserves, as was the case of Russian and Afghan reserves.
This paper analyzes the various reasons behind the US dollar’s dwindling value, alongside exploring the phenomenon of alternative currencies in the global financial system. As a result of economic and political shifts in the past few decades, there has been an evident deviation in the dollar’s dominance as the preferred currency of trade. This not only exemplifies the abating presence of the United States in the international financial market but also elucidates the ways in which nations such as Russia and China are further establishing their positions in the international system as well.