What Iran must do for de-dollarization
A dollarized economy is one whose monetary base is either connected to the dollar or is the dollar. Therefore, if the de-dollarization of Iran’s economy entails discarding the policies that have brought the economy to this point, the country should first focus on strengthening its national currency.
But even some institutions tasked with protecting the national and economic security operate with little faith in the national currency. For example, in the Ministry of Foreign Affairs, national banks and elsewhere, the euro is accepted as the unit to pay for their services. They claim that the central bank is not ready to offer foreign exchange for the rials it receives. Hence, this weakening of the national currency that has continued for the last three decades should be corrected.
Strengthening the national currency is one of the key pillars of de-dollarization because when the national currency is strengthened, people will trust it and will not try to convert it to foreign currencies, including the dollar. Thus for de-dollarization, Iran has to reform domestic policies first.
However, the problem is not the dollar per se, and the question whether the national economy is capable of creating value to help strengthen the national currency. The main issue here is production; to be able to ditch the dollar, Iran has to build a robust production footing.
De-dollarization basically means putting an end to the dominance of the dollar. The dominance of the dollar in the world economy is very real, having been formed over decades. It has given extraordinary clout to the US economy, where it only costs 40 cents for the US to publish a $100 note, meaning with the remaining $99.60, it can import goods for literally nothing. In other words, the dollar has given the United States the monopoly to import goods in exchange for printing paper.
But there is a high demand for this paper in world markets, including in Iran. The Americans churn out paper in the US, and people line up in front of banks and foreign exchange outlets in Iran to voraciously buy it.
This rage has its roots in the weakening of the national currency, which prompts the masses to try to convert their assets into something of value in the world.
To change this attitude, authorities have to help strengthen the rial and reverse the general feeling that their national currency is losing value by the day, basically due to the monetary policies of state officials.
If de-dollarization is to take place in the world economy, but no serious measures are taken to strengthen the national currency in Iran, it will be of no use.
De-dollarization has the advantage of actually reducing the demand for the dollar, and replacing it with another currency in international relations such as the euro or the yuan. That will not benefit the Iranian economy much unless its national currency is strengthened. When that happens, any ditching of the dollar will reduce the dominance of the US economy.
There are already signs of decoupling from the US economy. Saudi Arabia and China plan their oil transactions to be denominated in the yuan, which can affect the demand for dollars in the world market and weaken the political and economic leverage of the United States.
But the value of the national currency in Iran does not depend on de-dollarization in the world. It is rather dependent on production and domestic production capacities, not only the production of oil and gas and natural resources, but also production in which the role of technology and the role of human resources are very prominent. Hence, it is absurd to expect that de-dollarization would help strengthen the national currency.
Nevertheless, the repercussions of de-dollarization on the influence of the United States in the global economy and, consequently, on its political influence in other countries are huge, which explains why Washington abhors it.
The fall of the dollar, its devaluation, or its withdrawal from the international reference pricing basket and its decline into a common currency would have seismic ramifications, which would cripple the US’s political influence and economic domination.