Key Takeaways
- Several countries are increasingly moving away from the US Dollar in global trade.
- US Dollar’s share in global foreign exchange reserves has dropped.
- China has become the largest global trade partner in most countries.
YEREVAN (CoinChapter.com) — Amid the changing geopolitical and geoeconomics trends, discussions about the de-dollarization of the global economy are in full swing.
Several countries are taking steps to move away from the US Dollar by decreasing their dependence on the greenback for trade. Meanwhile, China has been constantly boosting trade ties with several countries.
The ‘anti-dollar movement’ is led by Beijing, which wishes to replace it with its Yuan. However, many other nations have joined the call, especially in Asia, Latin America, and the Global South.
According to Ambassador Mark Green, President of the Woodrow Wilson International Center for Scholars, China dominates global trade. It is currently the largest trading partner in over 120 countries.
“A number of nations are looking for stronger trade opportunities. While US policymakers seem to be hesitating on pursuing those opportunities, China is making progress in building new partners and agreements…it’s clear that the days of America’s trade dominance have passed.”
he argued.
As Washington’s global engagement declines, so does the prominence of the US Dollar.
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Global interest in the US Dollar falls amid de-dollarization
Last month, Russia announced it would use the Chinese yuan instead of the US dollar to settle its trade with countries in Asia, Africa, and Latin America.
During his official visit to Beijing, Brazilian President Luiz Inácio Lula da Silva urged developing nations to replace the American currency with their own.
Echoing similar sentiments expressed by the Chinese Government earlier, the 76-year-old leader questioned the logic behind everyone accepting the greenback as a reserve currency.
“Every night I ask myself, why are all countries obliged to do their trade backed by the dollar? Why can’t we do our trade backed by our currency? Who decided to use the dollar as a currency after the gold standard disappeared?”
he asked, drawing loud applause from the audience.
In March 2023, China completed its first liquid natural gas (LNG) trade in Yuan when it imported approximately 65,000 tonnes of LNG from the United Arab Emirates.
Earlier this month, Dilma Rousseff, the new chief of the Shanghai-based New Development Bank (NDB) of the BRICS group, announced that the institution would provide loans in the local currencies of member states. As much as 30% or one-third of the total loan amount will not be in the greenback.
Also Read: Another White House official says China Wants to Weaken the US Dollar
Owing to the growing economic concerns caused by the Covid 19 pandemic and the subsequent Ukraine war, the US Federal Reserve has implemented a series of rate hikes to fight inflation. Worried about local currencies, several Central Banks have followed suit to prevent capital outflows.
Too much reliance on the US Dollar is becoming a scary affair for many. Hence, they are increasingly pushing for de-dollarization.
US Dollar Share of Global Forex Reserves Declines
While reserve currencies are not permanent, it takes a long time to be deposed, as history has shown. If the Chinese yuan, or any other currency, ever replaces the US Dollar, it won’t be in the foreseeable future.
Around 80% of global trade is conducted in US Dollars. In contrast, the Yuan accounts for just 2%. However, despite its dominance, its share in foreign exchange reserves of various Central Banks has dropped.
According to the International Monetary Fund (IMF), the USD had seen its share in reserves drop since 1999, when it was over 70%.
Data from IMF’s Currency Composition of Foreign Exchange Reserves (COFER) reveals that the US dollar accounted for 58.36% of global foreign exchange reserves in 2022.
With the banking system in the United States bruised and crippled, the slow decline of the dollar will continue. Meanwhile, rivals China and Russia are making new friends, further decreasing Washington’s influence.
