The US dollar has dominated global trade and been the leading reserve currency for nearly 80 years.
But rival countries – including China and Russia – are trying to change that.
Here’s everything you need to know about the anti-dollar movement, and whether the buck is at risk.
For nearly 80 years, the US dollar has dominated international reserves and served as the main currency used in global trade.
But a growing list of countries – including Brazil, China, and Russia – are trying to unseat the greenback.
Here’s everything you need to know about de-dollarization.
What is de-dollarization?
The greenback is the global economy’s dominant reserve – meaning that it’s the main currency held by the world’s central banks.
The Bretton Woods Agreement at the end of World War II also established the buck as the primary currency of international trade, which is why futures contracts for commodities like crude oil and natural gas are almost always priced in dollars.
That’s a massive source of economic power for the US.
For example, the greenback’s dominance meant Washington was able to freeze half of Russia’s foreign currency reserves and ban its biggest banks from the SWIFT international payments system after Vladimir Putin invaded Ukraine in February 2022.
De-dollarization is the movement to reduce other countries’ reliance on the dollar – often with the goal of undermining the US.
How are other countries trying to unseat the dollar?
Rival countries China and Russia are spearheading the effort to wean the world off the buck.
China called for suppliers in the Middle East to accept its own currency rather than the dollar in oil trades in December, with President Xi Jinping’s trip to Saudi Arabia signaling “the birth of the petroyuan,” according to Credit Suisse analyst Zoltan Pozsar.
Meanwhile, Russia has stepped up its de-dollarization efforts over the past year – with Putin signing an executive order in March 2022 that forbade “unfriendly” countries from settling natural gas contracts in any currency other than the ruble.
Beijing and Moscow have also repeatedly pledged – alongside the other members of the BRICS group of countries – to launch a new reserve currency they hope could unseat the dollar as an international reserve.
Should the US be worried?
There’s some evidence that the world is slowly weaning itself off the dollar, with the greenback’s weight in foreign exchange reserves falling from 71% to 60% since the turn of the century, according to the International Monetary Fund.
More recently, Brazil announced the Chinese yuan had displaced the euro as the second-largest currency in its foreign reserves on March 31, stoking fears that the dollar’s reserve status could be under threat.
But despite China de-dollarization push, the yuan still accounts for just 2.7% of all foreign exchange reserves, according to the IMF – and analysts believe it’s unlikely that a rival currency will unseat the buck anytime soon.
Goldman Sachs said in a research note published Tuesday that the yuan – which is pegged to the dollar and tightly managed by a government that has a frayed relationship with much of the West – will always struggle to clear the “high hurdles to attain the top status of the global transaction currency.”
“There is a lot of inertia in reserve currency status,” a team of strategists led by Kamakshya Trivedi said. “So far, and likely for a long time to come, attempts at de-dollarization remain contained and constrained.”
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