According to Dollar, the dollar had become the dominant currency of the world essentially during World War II when most countries chose to hold reserves in the dollar, because at that time, the US was 50 percent of the world economy and one of the few places with functioning capital markets. 

While he suggests that the development of the offshore markets in the 1970s solidified the role of the dollar, Shukla is of the view that the importance of the dollar isn't only because it comprises a significant part of any forex transaction.

He explains that although the dollar as reserve currency is slipping by 1-1.5 percent every year – the share of the dollar as global currency reserves has fallen from 66 percent in 2014 to 60 percent in 2022 – yet it is “irreplaceable” as far as acceptance from private players is concerned.

Dollar argues that although China is an important factor, its currency – the yuan – has a share of less than 3 percent in global reserves at the moment.

He adds that the role of the dollar is not just linked to the size of the US economy, but also some institutional characteristics of the US – such as good property rights, open capital market, and flexible exchange rates – which give it an edge over China.

He further explains that even though countries, such as Saudi Arabia, can make trade deals with China, corporations and private players can't do so as their funds stand the risk of being expropriated by the Chinese authorities in the absence of rule of law.

Shukla adds that in the 1990s and early 2000s, the “dramatic underperformance” of the euro as a replacement to the dollar and the sheer dominance of China in terms of trade – it became the biggest trading partner after the US for almost every important economy in the world – started the move away from the US dollar.

Describing Russia as “a significant player outside the dollar,” Bahl says that the country has faced economic sanctions from the West on many occasions – first in 2014-15, when it invaded Crimea, and now after the Ukraine war. To evade these sanctions, Russia has piggybacked on its vast oil reserves – and the fact that it has allies across a very surprising spectrum.

Disagreeing with Bahl on this, Dollar says that even though Russia is an important geo-strategic player, it is not as important an economic player globally. He adds that the world is now moving away from oil and gas to bring climate change under control – as a result, Russia cannot bank on its reserves for too long.

On being probed by Bahl over the coalition of significant economies – all allies of Russia – moving away from the dollar, Dollar explains:

Shukla, too, says that Russia has triggered the move away from dollar, especially among its allies, which are symptomatic of a display of diplomatic and economic autonomy. But, he points out, Russians do not have the economic or political heft going forward to expedite de-dollarisation.

Even as China seems to lead a coalition of nations to trade outside the US dollar, it has over $2 trillion in US dollar reserves, its currency is spent to the dollar and its markets – largely linked via Hong Kong – are also suggestive of dollar flows.

Shukla agrees that while China and Russia have triggered a move away from the dollar, it has its limitations.

Pointing out that there is a decline in the share of the US dollar as global reserve currency, Bahl states that China is picking up almost a quarter of the dollar’s loss, but the remaining 75 percent of that loss is going to many smaller currencies. Shukla agrees and says this could lead to internationalisation of smaller currencies such as the INR (Indian rupee), giving way to a multipolar world.

Drawing attention to the emerging equation between China and Saudi Arabia, Bahl claims:

Given that the US dollar cemented its position via the petrodollar arrangement in the 1970s, Shukla says the arrangement between China and Saudi could trigger a big move.

However, the fact that the world is moving away from fossil fuels puts questions on the sustainability of the China-Saudi equation, which could entail trading oil in yuan instead of dollars.

To add to this, Dollar says that even if the Saudis agree to trade oil in the Chinese yuan, private firms in global markets would not agree to trade outside the dollar.  

He affirms that the holding of the Chinese yuan as global reserves remains miniscule but smaller currencies such as the Swiss franc or the Australian dollar are witnessing a rise in their share.

Dollar and Shukla both agree that the US is undermining the advantages of the dollar – by overdoing economic sanctions and by becoming the “single-largest source of policy accidents” – and by doing so, accelerating the process of de-dollarisation.  

Shukla also points out a stable diversification of global reserves, wherein the Indian rupee, Swiss franc, Aussie dollar or the Canadian dollar are gaining share, albeit very slowly.

Bahl concludes by saying that de-dollarisation is inevitable but there is a threshold beyond which the dollar will continue to be supreme.