Yes, many central banks and governments around the world want to kick their dollar addiction. They aren’t getting very far — except when forced, notes ‘The Wall Street Journal’.
The percentage of official foreign-exchange reserves allocated to US dollars globally was 58.9% in the second quarter of the year, figures published a few days ago by the International Monetary Fund show, broadly unchanged from the 25-year-low first reached in the fourth quarter of 2020.
Although the dollar serves as the bedrock of international financial markets, the backlash against globalization in recent years has prompted much talk of “de-dollarization.” Dollar reserves have fallen 2.9 %, despite a jump in the currency’s value. At constant exchange rates, the drop would have been 6.6%.
In July, only about 30% of Russia’s export transactions were in dollars and euros, compared with roughly 85% at the start of 2022, a report by the Bank of Russia suggests, thanks to a jump in ruble settlements and the introduction of the Chinese yuan. The country’s sovereign-wealth fund is also saving in yuan, as are some households.
Indeed, some reserve managers have turned to the Chinese currency, and President Xi Jinping is trying to promote the habit. IMF data shows that renminbi reserves have tripled since 2016.
Brazil has embraced it as a trade and reserve currency, with President Luiz Inácio Lula da Silva recently urging emerging nations to diversify away from the dollar. Argentina, which has been left without dollars following hefty payments to the IMF, has resorted to swapping yuan with the People’s Bank of China in exchange for wider adoption of the Chinese currency. This is ironic for a country that is debating whether to fully dollarize its economy as part of its presidential election campaign.
Then there is Beijing itself, which has a gargantuan $3.2 trillion reserve pot and is explicitly seeking to decouple from the West. US figures show that China has slashed its holdings of Treasurys by 21% since January 2022.
Of course, last year’s weaponization of the US monetary system against Russia is likely to lead to further pockets of de-dollarization in the long run, especially if tensions with China ratchet up further. The rise of nondollar cross-border payments systems — especially to pay for oil — shows that nations are aware of the geopolitical need for alternatives, WSJ writes.