De-dollarization is stalled and the greenback remains the king of the world’s reserve currencies. Why does the dollar have no rivals, for now?
The dollar dominates unchallenged as the reserve currency on a global level and, for now, attempts to weaken its global role do not appear to have had any significant effects.
The latest study to confirm the solidity of the US currency is by the GeoEconomics Center of the Atlantic Council. The “Dollar Dominance Monitor”, title of the report, highlighted that the greenback remains the king of foreign exchange reserves, trade invoicing, and transactions globally and that its role as the main global reserve currency is strong in the short-term and medium-term.
Neither the euro nor the so-called BRICS countries - which have long been discussing a new currency to replace the dollar - have been able to reduce global dependence on the greenback. The de-dollarization which is increasingly talked about in a context of global fragmentation and new balances of power is slow to take off, according to the data collected.
The dollar is unrivaled as a reserve currency
According to the Atlantic Council report, the dollar’s dominance over other world currencies is solid and has found strength recently thanks to the robust US economy, the Fed’s tighter monetary policy, and rising risks geopolitical.
In reality, economic fragmentation also triggered the push for the BRICS countries to move towards other international markets and other currencies, but with limited and non-persistent effects at the moment.
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Indeed, the study argues that the Western sanctions on Russia imposed by the G7 on advanced economies after Moscow’s invasion of Ukraine accelerated the BRICS group’s efforts to develop a monetary union, but the group is not was able to make progress in de-dollarization.
The euro itself failed to emerge in the currency landscape. According to analysts, the community currency, once considered a competitor to the international role of the dollar, is also weakening as an alternative currency. It is no coincidence that investors looking to reduce their risk exposure are increasingly turning to gold and not the euro.
The study highlighted that Russian sanctions have made it clear to reserve managers that the euro is exposed to similar geopolitical risks as the dollar. Concerns about macroeconomic stability, fiscal consolidation, and the lack of a European capital markets union also harm the currency’s international role.
Finally, it was noted that China has been actively supporting renminbi liquidity through swap lines with its trading partners, but its share of global foreign exchange reserves has fallen to 2.3% since a peak of 2.8% in 2022.
“This is likely due to reserve managers’ concern about the Chinese economy, Beijing’s stance on the Russia-Ukraine war, and a potential Chinese invasion of Taiwan all contributing to the perception of the renminbi as a geopolitically risky reserve currency,” the study states.
De-dollarization could materialize in a future that cannot yet be estimated. However, it seems unthinkable to oust the greenback from its role. A declining West, more wars, the rise of Asian powers, and China may chart a new course toward a weakening dollar or currency fragmentation. But actual results seem distant.
Original article published on Money.it Italy 2024-06-25 12:00:16. Original title: Perché la de-dollarizzazione non decolla (per ora)?
