Report disproves assertion linking 'de-dollarization towards the yuan'
In a gradual and incremental process, the shift of countries away from the US dollar as a global reserve currency is underway, but it is far from a rapid shift to China's yuan.
The US dollar continues to hold a significant share of foreign exchange reserves, with approximately 58% in 2024, according to recent projections. This figure surpasses the Chinese yuan's approximate 2% share.
The persistence of the US dollar as the dominant global reserve currency is due to several factors. The unparalleled liquidity and widespread use of the US dollar and its associated securities, such as US Treasury securities, provide investors and central banks with confidence to hold them.
Moreover, China's yuan faces limitations due to its limited convertibility and tight capital controls. These restrictions limit the yuan's appeal as a fully-fledged global reserve currency. The existing global financial infrastructure, heavily denominated in US dollars, also plays a role in maintaining the dollar's dominance.
Geopolitical and economic considerations also contribute to the slow pace of dedollarisation. Although geopolitical tensions and protectionist policies are accelerating talks of de-dollarisation and diversification into alternatives like gold, the euro, and others, structural shifts in global currency preference happen over years or decades, not months.
The decline in the US dollar's share is not solely due to the Chinese yuan but to a broader range of currencies. The Canadian and Australian dollars, Japanese yen, and British pound are among the currencies experiencing growth.
In the realm of international payments, the US dollar's share of non-Eurozone cross-border Swift payments has risen, reaching 60% in November 2023. However, there has been a rise in the yuan's share of global customer-initiated and institutional Swift payments over the past few years.
The platform forecasted that if trends continue, the move away from the dollar will be a slow process, and the USD will remain the largest currency for foreign exchange reserves for many decades. The yuan-specific dedollarisation narrative does not meaningfully apply to China's inbound and outbound payments.
In conclusion, while dedollarisation is occurring, it is far from a rapid shift to the yuan. The process is gradual due to the dollar’s entrenched role, liquidity, global trust, and the limitations of alternatives like the yuan. Claims of a rapid or imminent dethroning of the US dollar overlook these structural and practical realities.
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Despite the gradual shift of countries away from the US dollar, decisive dedollarization is slow, partly because of the enduring power of the US dollar in finance and investing, including the world's business sector. This dominance is underpinned by the dollar's unwavering liquidity, widespread use of associated securities, robust global financial infrastructure, and the limitations of alternative currencies such as the Chinese yuan.
