The US dollar has dominated global trade and capital flows of investors for many decades, but BRICS countries are actively seeking alternatives to reduce their dependence on the US.
- Brazil and China have reached an agreement to abandon the US dollar in trade transactions in favor of their own currencies.
- India and China plan to trade in their own currencies to reduce their dependence on the dollar.
- In 2022, central banks were buying gold at the fastest pace since 1987, signaling a desire to back their currencies with gold rather than the dollar.
- Sanctioning countries are actively getting rid of dollar reserves by increasing their gold and yuan reserves.
- Since 2000, the US dollar has slowly but steadily lost its share of global foreign exchange reserves.
According to the IMF, in recent years, the US dollar’s share of international reserves has been “stolen” by the Australian dollar (1.9%), the Canadian dollar (2.5%), and the Chinese yuan (2.8%). The yuan accounts for about 25% of the stolen share. China, which is gravitating toward a number of rising countries and is ready to intensify de-dollarization, will continue to try to increase its own presence in international economic and financial markets, with de-dollarization to be accompanied by yuanization.
In March, the Sino-Brazilian Banco BOCOM BBM joined the CIPS (China Interbank Payment System), the Chinese equivalent of SWIFT. At the same time, the People’s Bank of China appointed the Brazilian arm of ICBC (the world’s largest bank by assets) as the yuan-clearing bank in Brazil. Brazil itself increased the share of reserves in yuan to 5.4%, although this is more than the share of the euro (4.7%), but against the background of 80% of the reserves in dollars, the growth in the share of the yuan looks miserable. At the same time, in terms of liquidity, the volume of deposits in yuan remains quite low in the range of $200-300 billion (latest official data ~¥1.66 trillion)
China has stepped up sharply in promoting the yuan in the foreign market as a settlement currency, using the huge volume of foreign trade, but it is more of an expansion of financial space so far rather than a replacement of the dollar. And despite the fact that the US dollar is partially losing its position in the international arena, its value is not affected. The key factor in dollar pricing is still the Fed’s monetary policy, as well as market expectations on the regulator’s future monetary policy.
