Russia and Iran have officially announced their decision to ditch the U.S. dollar for trade, according to reports from Iran’s state media. This move comes as both countries continue to face U.S. sanctions. The agreement allows banks and economic actors to trade in their local currencies, using infrastructures such as non-SWIFT interbank systems.
The relationship between Russia and Iran has been growing closer, with Iran announcing last November that it will supply Russia with Su-35 fighter jets, Mi-28 attack helicopters, and Yak-130 pilot training aircraft. This move away from the U.S. dollar is part of a larger global de-dollarization effort that has been ongoing for years, with BRIC countries and other countries seeking alternative currencies to reduce dependence on the American dollar.
Russian President Vladimir Putin called for a review of the dollar’s role in trade back in 2019, and Russia and China considered switching to the euro as a potential alternative. The ultimate goal for both countries is to use their own currencies in international trade. However, despite these efforts, the majority of cross-border transactions among BRICS members are still invoiced in dollars, as exchanging local currencies frequently requires using the dollar as an intermediary.
Russia has also taken steps to reduce its dependence on the U.S. dollar in other areas. Last year, it paid dividends from the Sakhalin 1 and 2 oil projects in Chinese yuan instead of dollars. Additionally, Russia has declared that it will no longer accept the American currency as payment for its energy exports and will instead switch to Chinese and Emirati currencies.
While global de-dollarization efforts have been relatively slow, the decision by Russia and Iran to trade in their local currencies instead of the U.S. dollar marks a significant development in this ongoing shift away from the dominant role of the American currency. The move highlights the growing concerns of countries subject to U.S. sanctions and their desire to reduce vulnerability to economic pressure.
The impact of this decision on the international financial system and the future of the U.S. dollar’s dominance in global trade remains to be seen. However, it is clear that Russia and Iran, along with other countries, are actively seeking ways to diversify their currency holdings and reduce dependence on the U.S. dollar.
