 "Dollar fast losing dominance as global reserve currency as rupee, yuan rise")
New Delhi: Dollar, which has been ruling as the global reserve currency, is gradually losing its dominance especially after the onset of the Russia-Ukraine war last year. The US currency saw a massive decline of 8 per cent in 2022 in one year, “equivalent to 10 times the average annual pace of erosion in the USD’s market share in the prior years.”
Over the past few months, de-dollarization has become a trend among several countries who have started dumping the US dollar to trade in their local currencies.
Dollar’s stunning collapse
A report by Eurizon SLJ Asset Management said that the US dollar “suffered a stunning collapse in 2022 in its market share as a reserve currency, presumably due to its muscular use of sanctions” after the Russia-Ukraine conflict.
The greenback’s share of global reserves has decreased from about two-thirds in 2003 to 55 per cent in 2021 and 47 per cent in 2022, said strategists Joana Freire and Stephen Jen based on their calculation.
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“The [dollar] is losing its market share as a reserve currency at a much faster rate than is commonly believed,” they added.
As per the calculations, Jen and Freire said the dollar’s share of global reserves has declined by 11 per cent since 2016 on this adjusted basis.
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A report by MarketWatch said that data showed the dollar’s share of foreign currency reserves at central banks around the world has been declining slowly since the late 1990s.
As per the International Monetary Fund (IMF) latest data, the dollar’s share of central bank reserves stands at 58.4 per cent, down from roughly 70 per cent in the late 1990s.
Status of euro and yuan
Though dollar saw a decline, the share of euro as a reserve currency jumped by about 5 per cent, Eurizon said. This has, however, brought the currency to the same level it touched in 2003 and effectively erased two decades of losses.
Must Read: Drubbing the Dollar: China and Brazil ditch dollar, strike deal to settle trade in yuan, real
Meanwhile, China’s yuan, last year, continued to gain at its usual pace and didn’t see a big spike as a global reserve currency.
De-dollarization gains steam
The US currency is losing its hegemony after the West and the European Union nations imposed sanction on Russia following its invasion of Ukraine. Several countries have given up trade in dollar and are using local currency to make payments.
Trading in local currencies are also aiding these countries to get rid of transaction or exchange cost which were allegedly high while settling trade in dollars.
India will soon start settling overseas trade with about 19 countries in the Indian rupee.
Recently, Bangladesh and India said they facilitate trade payment in INR and taka.
Other countries trading in INR include — Russia, Singapore, Sri Lanka, Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Seychelles, Tanzania, Uganda and the United Kingdom.
Also Read: De-dollarisation: Bangladesh dumps US currency, becomes 19th country to trade with India in rupees
Iran has abandoned settling trade in dollar with China and Russia. Saudi Arabia said it will completely give up PetroDollar and begin accepting PetroYuan.
Earlier this month, the Brazilian government gave up dollar as an intermediary and announced a deal to trade in local currency with China. After few days, President Luiz Inacio Lula da Silva, who visited China, had called for the BRICS nations to give up US dollar and come up with their own alternative currency to settle cross-border trade.
Meanwhile, Russia has been largely using Chinese yuan in international trade. It is also mulling launching a joint BRICS currency.
With inputs from agencies
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