Major financial media outlets in the West have acknowledged that “de-dollarization is happening at a stunning pace”.
Countries around the world, especially in the Global South, are moving away from the US dollar, using other currencies in international trade settlements and diversifying their reserves.
In fact, the dollar’s share of the foreign-exchange reserves held by central banks worldwide fell to 47% in 2022, a precipitous decline from 73% in 2001, according to a study by the renowned economist Stephen Jen.
This is a historic shift that hasn’t been seen since World War II and the 1944 Bretton Woods Conference, which established the US dollar as the global reserve currency.
Chinese President Xi Jinping hinted at this transition when he visited Moscow this March, telling Russian President Vladimir Putin, “Right now, there are changes the likes of which we haven’t seen for 100 years”.
Bloomberg reported on April 18 that the “dollar is losing its reserve status at a faster pace than generally accepted as many analysts have failed to account for last year’s [2022’s] wild exchange rate moves”.
The US currency’s share of global reserves decreased in 2022 “at 10 times the average speed of the past two decades as a number of countries looked for alternatives after Russia’s invasion of Ukraine triggered sanctions”, the media outlet added.
Bloomberg cited a study by the firm Eurizon SLJ Asset Management, which found that the “dollar has lost about 11% of its market share since 2016 and double that amount since 2008″.
Eurizon economists Stephen Jen and Joana Freire stated, “The dollar suffered a stunning collapse in 2022 in its market share as a reserve currency, presumably due to its muscular use of sanctions… Exceptional actions taken by the US and its allies against Russia have startled large reserve-holding countries”.
Jen previously served as a currency analyst at US investment bank Morgan Stanley.
The Financial Times also published an article based on his study.
The newspaper reported: “Jen estimates that if you adjust for price changes the dollar’s share of official global reserve currencies has gone from about 73 per cent in 2001 to around 55 per cent in 2021. Then, [in 2022], it fell to 47 per cent of total global reserves”.
This change is significantly larger than what was previously acknowledged by the International Monetary Fund (IMF).
In a 2022 working paper titled “The Stealth Erosion of Dollar Dominance”, the IMF estimated that the US currency’s share of global foreign-exchange reserves fell from just over 70% in 2000 to slightly below 60% in 2021.
But Eurizon’s estimates, which account for price changes, are even more dramatic.
“The prevailing view of ‘nothing-to-see-here’ on the USD as a reserve currency seems too innocuous and complacent”, Jen and Freire wrote in their study.
“If the US makes more policy errors and abandons the culture of self-examination, there will likely come a time when much of the rest of the world will actively avoid using the dollar”, they added.
“Finally, what needs to be appreciated by investors is that, while the Global South is unable to totally avoid using the dollar, much of it has already become unwilling to do so”.
