On Tuesday, Stephen Jen, the CEO of London-based asset management company Eurizon warned that large parts of the world are now moving away from using the dollar in trade due to the sanctions imposed on Russia, and this is increasingly threatening the dollar’s status as a reserve currency.
Last year, the dollar’s share in global reserves fell ten times faster than over the previous two decades according to Jen, citing data from Bloomberg. According to Jen, this began when Russia was cut off from the SWIFT global financial messaging system, and its assets abroad were frozen, forcing trade partners to begin to look for alternative means of settling trade obligations.
In a note to clients, Jen and his Eurizon colleague Joana Freire wrote, that after adjusting for the “wild exchange rate” variability over the last year, the dollar had lost about 11% of its market share over the past seven years, and 22% of its share over the last 14 years.
The note said, “The dollar suffered a stunning collapse in 2022 in its market share as a reserve currency, presumably due to its muscular use of sanctions. Exceptional actions taken by the US and its allies against Russia have startled large reserve-holding countries…”
The experts went on to note that in 2001, when it was the “indisputable hegemonic reserve,” the dollar represented about 73% of total global reserves. However today that share has fallen to about 58% of total global reserves.
Now today, China and India are settling international trade obligations in their own currencies, as Russia has begun to accept payments for its exported products from various countries in both rubles and Chinese yuan.
Meanwhile Brazilian President Luiz Inacio Lula da Silva, had called on developing nations last week to shift away from the dollar and move toward using their own currencies to settle international trade obligations.
After the comments by the Brazilian President, US Secretary of the Treasury Janet Yellen admitted that as Washington has attempted to use its leverage over the global financial system, to inflict sanctions on nations to pursue geopolitical goals, it may cause the dollar to see its role as a global reserve currency diminished.
