Special Drawing rights as a solution to De-dollarisation

Investopedia defines de-dollarisation as “a process of moving away from the world’s reliance on the U.S. dollar (USD) as the chief reserve currency.”

Section 01 of Article 4 of the Articles of Agreement of the International Monetary Fund state that the Fund has and will “seek to promote stability by fostering coherent (orderly underlying) economic and financial conditions and a monetary system that does not produce erratic disruptions.” Persistently worsening economic policies and the rise of de-dollarisation will inadvertently push people and the economy into a new global currency, thus hurting the motto of stability which the IMF promotes.

What is the guarantee that what is happening to the US Dollar right now will not happen to another currency- say, the Yuan or the Euro, a few decades down the line? Instead of this currency being the currency of one country or a group of nations like the BRICS.

However, the SDR or the Special Drawing Rights of the IMF could be a viable solution to de-dollarisation. The SDR is a basket of the world’s 5 leading currencies. Therefore it is disconnected from the economic interests of any one country. It is instead a global currency.

Getting back to stability: Owing to its construction SDR’s are more stable than the dollar or any single currency. Holding a portfolio of SDRs gifts a country with less exchange-rate valuation risk than holding dollars.

Instead of relying on a single point of failure by sticking to one currency, the SDR is a diversified set of reserve assets. It mitigates risks that arise from fluctuating exchange rates and the economic conditions of any given country.

The SDR is an alternative that includes major currencies from both developed and emerging economies. The SDR reflects the world as it is today.