Estimating the Propensity for Authoritarian Governments and Developing Economies to Engage into De-dollarization and Reserve Currency Diversification Initiatives

Abstract

After World War II, the US dollar established itself as the global primary means of payment, store of value, and unit of account, maintaining its dominance to current times. However, nowadays there are new emerging powers with different political views from the West. Thus, de-dollarization initiatives propelled by such governments carry substantial repercussions for reserve currency diversification in developing economies. The research identifies common characteristics among governments engaged in de-dollarization initiatives. By discussing their incentives, mainly associated with political risks, the research assesses how authoritarian governments are propense to increasing their use of non-traditional reserve currencies. The empirical results, derived from cross-sectional probit regressions, show that governments expressing the intention of reducing US dollar use for international payments display links with higher authoritarianism, capital controls, political closeness with BRICS countries in the United Nations General Assembly, and reliance on China as a major trade partner.