Founder of CPM Group: "De-dollarization will backfire on countries trying to move away from the dollar"

• The US currency is up 40% from its 2011 lows, while currencies such as the yuan have depreciated against the dollar over the past decade, according to Business Insider

• "The transition to another currency regime is not impossible, but it will either take decades or occur at the end of a huge global economic and financial collapse, which I do not see happening," says the analyst

De-dollarization is a fad, which will likely backfire on countries trying to move away from the US currency, affecting their economies, believes Jeffrey Christian, longtime commodity analyst and founder of research and consulting group CPM, writes Business Insider, in an article published late last week.

In his opinion, despite de-dollarization efforts, it is unlikely that the dominance of the "greenback" will end, taking into account how widespread the currency of the United States is in the financial markets. "I think de-dollarization is a dream of some of us," Christian said in an interview with Business Insider.

"There is the idea of moving to a multi-international currency regime, which is great, but the logistics behind it are extremely daunting, because all governments and countries would have to change the way they operate with currencies."

• Just a buzzword

Christian is part of the group of de-dollarization skeptics on Wall Street who see the idea as nothing more than a buzzword, according to the American publication. De-dollarization is a "myth", "nonsense" and a "bad joke", Christian told his clients earlier this year, adding that he did not take fears that the dollar would be replaced by another currency very seriously.

This is partly because countries that are "determined" not to use the dollar face a number of economic consequences, including:

• Payment problems

First, countries moving toward de-dollarization have problems with payments, according to the analyst. He gave the example of India which last year insisted on buying Russian oil in rupees and dirhams - the currency of the United Arab Emirates. But according to traders, this has caused at least seven India-bound oil tankers to return to Russia, according to a Reuters report.

Disagreements between countries over payments stem from the fact that other currencies are not nearly as liquid as the dollar, which is the most widely used currency in global markets, and as a share of central banks' currency holdings.

"Other currencies, such as the Chinese yuan, are subject to strict capital controls that make them less liquid and therefore less attractive than the dollar," Christian said. "It is also difficult to rapidly increase the liquidity of a currency without causing high inflation."

• Restriction of Trade

Second, countries that try to phase out the dollar risk stifling their imports and exports. Again, this is because the dollar is the most used currency in global transactions, and not using it can limit a nation's scope of trading partners, which also affects economic growth, according to the analyst.

Russia is one such example, according to an economist at UC-Berkeley University in California. The regime in Moscow ditched the dollar after the country was hit by sanctions in 2022, which has isolated Russia in international markets, which may further weaken its economy.

• Value erosion

Third, by holding other currencies, central banks risk making a "bad investment" because the US dollar preserves value better, says the founder of the CPM Group.

The U.S. dollar index, a measure of the value of the U.S. currency against a basket of six other currencies, has appreciated about 40 percent from its 2011 low, while currencies such as the yuan have depreciated against the dollar over the past decade.

In fact, with the exception of Russia where geopolitical tensions have an impact on economic policies, Jeffrey Christian does not see "too many" countries in the world going for a large-scale de-dollarization. In his opinion, given how much the dollar is used in financial markets, it would take decades for the US currency to be replaced, if ever.

"The transition to another international currency regime less dependent on the dollar has these massive impediments. It's not impossible, but it's either going to take decades to execute, or it's going to come at the end of a massive global economic and financial collapse, which I don't see happening," Christian said, as quoted by Business Insider.