Marcel Salikhov, manager of the economical Expert Centre of the University of Economics in Moscow
The de-dollarisation of the global financial strategy will continue.The improvement of fresh financial technologies will support this.Central banks will search to account straight for each another without utilizing developed countries' currencies.In future, the digital currencies of central banks can besides be utilized in global transactions, reducing the cost of economical transactions.However, this process will be slow.
Fawning George - stock photograph © Getty Images
Its usage in global transactions for many decades has importantly exceeded the American share of the planet economy, which is now around 24%.
For example, according to the IMF, the dollar accounted for 58.4% of global central banks' abroad exchange reserves at the end of 2002.
According to SWIFT, the share of the dollar in interbank transfers in April 2023 was 59.7%.
This was much more than a year earlier.Several factors affect the active usage of the US dollar, even in transactions between 3rd countries:
the size of the US economy (the largest and most liquid marketplace for financial instruments, including reliable ones), political influence and the function of US multinationals inWorld markets.
All these aspects interact and support each another for a long time.
It is besides worth remembering that the 2008-2009 global financial crisis, which had its origin in the US economy itself, did not affect the dollar position in the world.
However, the blocking of the reserves of the Bank of Russia by Western countries, as well as large-scale financial sanctions against Russian banks and companies, has caused many to wonder whether the benefits of dollarisation are not all they seem.
The extra-economic hazard of dollar transactions and dollar assets has become apparent to all, especially to central banks.
In particular, Article 21 of the 2004 UN Convention on the Jurisdiction Immunities of States and Their Property Guarantees Immunity for Central Bank Assets.
However, this did not prevent the assets of the Bank of Russia from freezing, which is now a precedent.Russia's actions under these conditions were expected and understood.
Since the beginning of 2023, the Central Bank has started conducting operations under the budgetary regulation in Chinese yuan.
Russian companies restructure their abroad trade activities and the way they accumulate abroad assets, preferring the currencies of "friendly" countries.
Basically, it means it's not Western.At the same time, current data do not indicate a massive resignation from the usage of the US dollar by central banks.
The share of US currency in global reserves has steadily declined over the past fewer decades, but at a comparatively slow pace.
While around 70% of the world's central bank reserves were held in US dollars in the early 21st century, this figure fell to little than 60% by 2020. In 2022, there was no extremist decline in dollar reserves.
His share of the reserves fell by 0.44 percent pointsWhile its usage in interbank transfers has indeed increased.
Are there alternatives to the dollar?The main reason for this, despite of course the increased political risk, is the deficiency of serious alternatives that could absorb crucial sums of central bank savings.The conventional function of abroad exchange reserves, both for private entities and governments, is to guarantee financial stableness and hazard diversification.
One instrument for this intent is central bank reserves.
They are highly liquid and can be rapidly utilized for currency interventions if necessary.
A downside is the advanced vulnerability of specified assets to sanctions.
And low yields.The euro area government bond marketplace is divided into individual countries, many of which have low credit ratings.
Chinese yuan is not freely interchangeable.It is divided into an interior (offshore) and external (onshore) part and is under strict control of the National Bank of China.
Gold as an asset may be a good hedge in times of crisis, but it does not make interest income and has low liquidity.
Therefore, for central banks in developing countries, it is not clear which assets – and in what currency – can be an alternate to those held in US dollars.
Storage of wealth not only in gold and abroad exchange reservesA more crucial origin than the nominal share of the US dollar in global reserves is the changing approach to the management and accumulation of abroad assets.
The same IMF data shows that the full value of central bank reserves has virtually remained unchanged at $11.5-12 trillion over the last decade, despite the growth of the global economy.China's abroad exchange reserves reached the highest level of $4 trillion in 2014 and have since fallen.Their current value is USD 3.2 trillion, which is 20% little than in 2014. Many another developing countries do not increase their global reserves unless they reduce them.
However, this does not mean that external assets are not created.These may be created in ‘non-standard’ forms, specified as assets of state property funds, state banks, improvement institutions and another structures not straight linked to central banks.Foreign direct investment by government structures may besides be classified as a kind of reserve asset.Such a strategy is not intended to maximise the availability and liquidity of assets, but to safeguard its own economical interests in abroad markets.
To any extent, it provides better protection against the political hazard of asset freezing, as their legal position is little transparent.China strategyA akin strategy is pursued by China, which seeks to gradually "internationalise" its currency.
The formal participation of yuan in the global reserves of central banks is tiny and is no more than 3%.
Furthermore, from 1 3rd to half of this request is provided by the Bank of Russia.China's strategy is to safe the global RMB position through trade alternatively than investment.
In fresh years China has actively tried to motivate and encourage its partners to trade in RMB alternatively than in another currencies.
This is done in many ways, including infrastructure development, SWIFT's own equivalent, settlement development, global loans in currency and so on.
Many people have heard the word "petroyuan" – the equivalent of a petrodolar.
Indeed, this is the signing of long-term oil supply contracts in yuan in exchange for the movement of goods and equipment.
Thus, trade is already taking place in yuan alternatively than in US dollars.
This creates request outside the Chinese economy.
At the same time, the Chinese authorities keep restrictions on capital transactions.***The de-dollarisation of the global financial strategy will continue.
In particular, advancement in financial technology will be encouraged.
The improvement of automated trading platforms will reduce the costs of switching 1 currency to another.
Central banks will aim to straight account for each other's currencies without straight utilizing the currencies of Western countries.
In future, the digital currencies of central banks can besides be utilized in global transactions, reducing the costs of economical operators.
However, this process will be slow and no fundamental change in the global financial strategy is expected in the foreseeable future.This article was originally published by the Valdai Discussion Club and edited by the RT team
Translated by Google Translator
source:https://www.rt.com/news/579670-end-of-dollars-global-dominance/
