2024-05-08 16:33:24
Geopolitical events and trade wars in recent years have changed the map of global trade and foreign direct investment flows, but might they have influenced Dollar dominance In global trade transactions in favor of the yuan?
The latest data from the International Monetary Fund shows that the U.S. dollar remains the dominant currency for international payments, accounting for more than 80 percent of trade transactions, likely because many commodity trades are still invoiced and settled in dollars.
However, the dollar’s share of total global foreign exchange reserves fell to 58.4% in the last quarter of 2023, compared to around 70% since the start of the millennium, driven by the gradual diversification of dollar foreign exchange reserves and partly towards non-monetary reserves. -traditional reserve currencies such as the Australian dollar and the Canadian dollar.
Although the dollar’s dominance has not affected trade among U.S. partner countries, the landscape of trade transactions among China’s partner countries has changed significantly between 2022 and 2023, according to international critics, and the yuan Chinese began to emerge. as a competing currency to the dollar in international payments.
Opportunity for the Chinese yuan
An International Monetary Fund report released Wednesday found that the dollar’s share of trade payments between China’s partner countries has declined since the start of 2022 and in return, the Chinese yuan’s share has more than doubled from regarding four percent to eight. percent.
Looking at the share of the Chinese yuan in international transactions between China and its partners, it was close to zero 15 years ago, but has increased to around 50% by the end of 2023. At the same time, the share of the dollar has seen a decline. from 80 percent in 2010 to 50 percent in 2023.
The IMF said in the report: “The growing use of the yuan may have been supported by the Cross-Border Interbank Payments System, a system launched by the People’s Bank of China to provide clearing and settlement services for international transactions in yuan. » as well as trade agreements that supported the use of local currencies between China’s partner countries at the expense of the dollar.
Gold…another competitor
The International Monetary Report showed that the share of gold in the foreign exchange reserves of China’s partner countries has increased since 2015, a trend that is not led by China and… Russia Not only does it control the blocs that support China, but in return, the share of gold in the foreign exchange reserves of the United States’ partner countries has remained generally stable.
In China alone, the share of gold in total foreign currency reserves increased from less than 2% in 2015 to 4.3% in 2023. In contrast, the value of Chinese holdings of US Treasuries by ratio of foreign currency reserves declined from 44 percent to around 30 percent in 2015. The hundred.
Gold is generally considered a safe and politically neutral asset. It can be stored at home and protected from sanctions or confiscation. It can also serve as a hedge once morest inflation.
Business blocs are changing the landscape
Trading blocs have re-emerged as geopolitical conflicts and wars have increased around the world, prompting some countries to redirect trade and investment flows away from the dollar, and sparking a shift in the global trade landscape.
For example, China’s share of US imports fell by around 8% between 2017 and 2023 following trade tensions escalated, and during the same period, the US share of Chinese exports fell by regarding 4%.
These trends are not driven solely by the United States or China, but remain apparent even when excluding these two countries from the picture, as direct trade between Russia and the West has also collapsed in the following the invasion of Ukraine and the subsequent sanctions once morest it. Russia.
Some trading blocs have emerged in recent years calling for a move away from dollar dominance in favor of trade using local currencies, led by the group BRICSwhich includes China, Russia, India, South Africa and Brazil, as well as Egypt, Saudi Arabia, UAE, Iran, Argentina and Ethiopia who will join the group early 2024.
The BRICS alliance is attempting to create a common currency to limit the dollar’s control over global trade. Brazil and Russia have called for the creation of a common currency called (the BRICS currency) which would be used in financial transactions between the countries of the group. limit their exposure to fluctuations in the dollar exchange rate.
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