Discussions surrounding the role of the US dollar in the global financial system have intensified in recent years. Against the backdrop of shifts in international markets, rising geopolitical risks and the policies pursued by major economies, certain signs of a relative weakening in the dollar’s position can be observed. However, these developments are not being interpreted as evidence of a sharp depreciation of the dollar or its displacement from the global financial system. Rather, they point to long-term and gradual changes shaped by investor expectations and growing interest in alternative financial instruments.
At the same time, although initiatives to use national currencies in regional settlements are frequently raised, the effectiveness of such mechanisms continues to face serious limitations. The level of mutual trade turnover, macroeconomic stability, confidence in financial institutions and liquidity capacity play a decisive role in this regard. Under current conditions, the prevailing view is that the dollar retains its leading position in the global financial system, while alternatives largely serve a complementary function.
In an interview with the News.Az analytical portal, Azerbaijani economist Eldaniz Amirov said that arguments about the gradual weakening of the dollar are not purely speculative and that certain tangible processes are indeed under way.
Photo: Azerbaijani economist Eldaniz Amirov
According to him, the current situation is largely shaped by expectations and forecasts. In particular, psychological factors rooted in behavioural economics have somewhat reduced demand for the dollar. “The confidence of global investors in the US currency, as well as countries’ trust in it as a reserve currency, is no longer at the level observed in 2024,” he said.
Amirov noted that several factors lie behind this trend, with one of the key drivers being the policies pursued by the Donald Trump administration, which have generated heightened uncertainty in global markets. “Credit rating downgrades, protectionist approaches and escalating geopolitical tensions have encouraged investors to shift towards alternative assets, including gold and other currencies, thereby placing additional pressure on the dollar,” he added.
Nevertheless, Amirov stressed that these developments do not necessarily indicate a long-term and sustained weakening of the dollar. “It is difficult to make a definitive forecast on this issue. However, the likelihood of the dollar strengthening again after 2028 is quite high,” he said.
The economist also addressed the issue of transitioning to national currencies in regional settlements. He stated that the primary prerequisite for the use of national currencies in regional transactions is a high level of economic integration among the countries concerned, particularly in terms of mutual trade turnover. “The widespread use of the euro within the Eurozone, for example, is explained by the close economic and trade relations among its member states,” he noted.
According to Amirov, applying this model in other regions is considerably more difficult. When intra-regional trade is insufficiently developed, mechanisms for settlements using either a single currency or national currencies fail to emerge. “If mutual trade turnover does not account for at least 30 per cent of a region’s total foreign trade, settlements based on national currencies are not realistic,” he added.
Amirov further noted that although alternative mechanisms are theoretically possible, their implementation is a complex and long-term process. From the perspective of macroeconomic stability, regional political conditions, financial system resilience and digital infrastructure, existing alternatives are currently not capable of replacing the dollar. He also commented on initiatives within the BRICS framework aimed at creating a currency alternative to the dollar, describing them as unrealistic. According to him, 70–80 per cent of BRICS countries’ trade turnover is conducted with countries outside the bloc, primarily with Europe and the United States.
In Amirov’s view, a reduction in the dollar’s share of the global financial system is possible, but such a shift can only occur gradually and will manifest differently across regions and countries. “In Europe, the euro, and in Asia, the Chinese yuan and other regional currencies may partially replace the dollar in specific areas,” he said. At the same time, he emphasised that amid a relative weakening of the dollar, an increased role for gold cannot be ruled out. “Rising gold prices and its broader use as a settlement instrument remain plausible scenarios,” he added.
Amirov also warned that a sharp weakening of the dollar’s dominant position could pose serious risks, particularly for developing countries, as such a scenario could increase the influence of other economic and financial powers and leave local economies more vulnerable. “While certain opportunities may arise in this process, the risks are more significant, and a rapid decline in the dollar’s strength could generate new challenges for the global financial system,” he concluded.
Economist Orkhan Baghirov also shared his assessment with News.Az, noting that a decline in the dollar’s share of the global financial system is already evident in statistical indicators.
Photo: Economist Orkhan Baghirov
According to him, this trend is especially noticeable in official foreign exchange reserves, where the dollar’s share has been decreasing. However, he stressed that it would be incorrect to interpret this process as a sharp weakening of the dollar, a rapid loss of value or a collapse of the dollar-based system. “The dollar continues to hold a leading position in international trade, financial markets and as a reserve currency. Claims about the ‘end of the dollar’ or the ‘collapse of the dollar system’ are largely political or media-driven narratives,” Baghirov said.
He added that global financial actors are responding to current changes with extreme caution and in a phased manner. The present situation, he argued, should not be viewed as a loss of the dollar’s core role, but rather as a relative weakening within a broader diversification process.
Baghirov also addressed the issue of conducting regional settlements in national currencies. In his view, such a transition requires strong macroeconomic stability, low inflation, credible monetary policy and a high level of trust in financial institutions. In addition, interbank clearing mechanisms, currency swap instruments and effective risk-hedging tools must be sufficiently developed.
He warned that without these conditions, regional settlements in national currencies could face liquidity and convertibility problems, increasing overall financial risks. “This is particularly true for weak and unstable currencies, where such operations create additional exchange rate risks. Without a fully established institutional framework, conducting settlements in national currencies in a secure and efficient manner remains difficult,” he noted.
Baghirov further observed that alternative currency mechanisms are currently applied only in limited cases, primarily within certain regions and mostly in bilateral trade arrangements. These mechanisms, he said, are not capable of replacing the dollar at a global level and instead function more as political signals or tools for strategic diversification. “At present, no real alternative exists that can match the dollar in terms of legal transparency, liquidity and credibility,” he said.
He concluded that the processes currently under way should be understood not as a complete replacement of the dollar, but as its parallel use alongside other currencies. “A functional and sustainable alternative currency mechanism capable of fully substituting the dollar has yet to emerge,” Baghirov said, adding that while these developments may create certain opportunities for small and medium-sized economies, they also carry significant risks. “In some cases, settlements in national currencies can reduce transaction costs and lessen currency dependence. However, in countries with underdeveloped financial markets, exchange rate volatility and liquidity risks remain high.”
Moreover, the fact that many countries’ external debts are denominated in dollars makes a rapid shift to alternative currencies particularly risky. “These countries are still obliged to service their debt in dollars. Therefore, the primary objective should not be de-dollarisation itself, but the careful and balanced management of existing risks. Otherwise, this process may prove more harmful than beneficial,” Baghirov concluded.
