It was the undisputed master of the game and the world’s reserve currency after the end of World War II and the Bretton Woods agreement, as it was backed by the world’s largest gold reserves. dollar“currency USA and the problem of other countries,” said John Connally, US Secretary of the Treasury during the Nixon administration, in a now-famous statement, “determined the fate of economies around the world for decades to come. However, for the first time and since the wave of geopolitical tensions, after the side effects of the pandemic and the feeling that she is being used as a weapon by Washington, she seems to be losing some of her sovereignty.

Last tuesday China completed its first liquid purchase natural gas (LNG) from the French company Total Energies, paying coin her, yuan. On Wednesday, the Argentine government announced that it would now pay in yuan for everything it imports from China, and that in April it paid in Chinese currency for imports of about $1 billion worth of Chinese goods. It also announced that it would do the same. regarding imports. in the future from China, which amount to approximately $790 million per month.

At the end of 2022, it accounted for 58.36% of global foreign exchange reserves, up from over 70% in 1999.

And a few weeks ago, in April, two leaders visited Beijing and spoke directly about the need to limit its omnipotence. dollar: On the one hand, Brazilian President Lula da Silva asked to limit the role of the dollar in world trade, and on the other hand, Malaysian Prime Minister Anwar Ibrahim called for the creation of the Asian Monetary Fund, which will support the efforts of economies around the world to reduce their dependence on the dollar. And in early April, India agreed with Malaysia to use the Indian rupee in their bilateral trade.

In short, not only China since the Obama presidency, that is, before the trade war of Donald Trump, has tried to strengthen the international role of the yuan. It is no longer only declared enemies of the superpower, such as Iran And Russiawho come together to use their own currencies to trade with each other transactionsto circumvent their economic blockade and limit the omnipotence of the dollar. This is a broader trend that is starting to show tangible results. As he literally points out IMF“The presence of the US dollar in international trade, global debt and non-bank lending continues to significantly exceed the US share in international trade, bond issuance and international lending.

However, central banks no longer hold as many dollars in their reserves as they used to.” At the end of last year, the dollar accounted for 58.36% of the world’s foreign exchange reserves, down from over 70% in 1999, according to the IMF. Of course, they do not cease to pale in front of dollar percentages, the corresponding rates of the euro and yuan, which are only 20.5% and 2.7% respectively over the same period of time.

Unwavering king in trade

In an attempt to defend the dollar, which, as it emphasizes, is undoubtedly under attack and in danger of losing its dominance, the European online newspaper Politico emphasizes that the risks for the US currency stem from the decoupling of economies, that is, the fragmentation of the world economy and its division into geopolitical camps. rather than the emergence of a strong competing currency. And the politics of the superpowers are indirectly responsible for them, although, according to Politico, this is not about geopolitical tensions between the US and other countries, but mainly about the level of borrowing, spending and inflation in Washington.

72% of global trade in 2022 was in dollars, a figure that has remained stable for 30 years.

The absence of a competitive currency capable of replacing the dollar is obvious and understandable. Its only possible replacement in the future may, in the opinion of many, be digital currencieswhich, after all, have been discussed from time to time as the choice of the leaders of emerging economies. However, these forms of decentralized finance have largely lost their luster after the successive scandals that have unfolded in the cryptocurrency world over the past year.

In addition, the depreciation of the dollar concerns almost exclusively its share in world foreign exchange reserves, since its dominant position in international trade remains undeniable. A small retreat is also noted in the report on the presence of large savings in US Treasuries. China, for example, traditionally the superpower’s second-largest creditor after Japan, has cut its investment significantly in recent years.

She now owns nearly $849 billion in US government bonds, up from about $1 trillion before 2017. USD Today, its exposure to US debt is at its lowest level in 12 years. But this is where the losses for the dollar, which continues to dominate world trade and global financial transactions, end.

Oil and major commodities are valued in dollars. Any impression to the contrary is false. Over the past year, the total volume of world trade has reached 32 trillion. dollars, and the dollar accounted for more than 72% of transactions. However, this percentage has remained stable for 30 years. Even more decisive is the dominance of the dollar in global financial transactions. Last year, the total turnover of the US capital markets averaged $32 trillion. US dollars per month. This amount is equal to the annual turnover of world trade. After all, according to the Bank for International Settlements, at the end of last year, the value of derivative contracts that changed hands exceeded 638 trillion. dollars, and the dollar accounted for 88% of all transactions.

Pressure on the US currency to escalate

The downward trend in dependence on the dollar is the result of many factors, and many expect it to continue and intensify. The MLIV Pulse Investor Survey found that a majority of respondents predict that the dollar will account for less than 50% of global foreign exchange reserves within a decade.

Reflections towards independence from the dollar began to appear after the global financial crisis of 2008, when the consequences of the Fed’s monetary policy turned out to be catastrophic for emerging economies. The US subprime mortgage crisis then triggered a global financial crisis that hit economies around the world and raised concerns about the stability of the US financial system.

This was followed by an unprecedented expansionary monetary policy of the Federal Reserve System, and a decade ago, when the decision to raise interest rates was first taken, a literal flight of capital from emerging economies. Something similar, albeit on a milder tone, is now being seen in many emerging economies, while the Fed’s aggressive move towards restrictive monetary policy is forcing central banks many other countries will follow suit to prevent a rapid devaluation of their currencies and a recurrence of runaway capital flight. Meanwhile, the recent crisis in the US regional banks has again raised concerns about the stability of the US financial system. After all, the cost of borrowing in dollars for developing countries is still almost prohibitive.

However, undoubtedly, among the factors that have recently accelerated almost global efforts to wean off the dollar are the flurry of sanctions imposed by Washington and its allies on the Russian economy, and, above all, the decision of the superpower to “freeze” the Russian foreign currency. foreign exchange reserves after Russia’s invasion of Ukraine. This served as a catalyst for a long-term economic rapprochement between China and Russia. Similar pressure in this direction is exerted by China’s dominance of world trade, as well as its general transformation into the world’s second economy. China was the top trading partner of 61 countries last year, based on imports and exports, according to the IMF. During the same period, the US was the most important trading partner of 30 countries.

Efforts

Commenting on the efforts of central banks to protect their currencies and prevent massive capital outflows, Fitch Solutions analyst Cendris Chehab noted that “by changing the composition of their reserves and choosing a greater variety of currencies in their portfolio, they can reduce pressures.”

$849 billionhitting a 12-year low, China’s investment in US Treasury bonds has been limited.

Confidence

Commenting on the decision of many countries to use their currencies in foreign trade, former Brazilian Ambassador to China Marcos Caramuro emphasized that “trading in local currencies gives exporting and importing companies more confidence in their income and sales.”

$150 billion Bilateral trade between Brazil and China began in 2022 and could soon be in yuan.

Trend

Commenting on the broadening trend away from the dollar, Mark Tyvenkier, an analyst at Tosca Fund in Hong Kong, noted that “if someone disagrees with US foreign policy, they risk having their currencies confiscated or frozen.” .