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Dedollarisation efforts will make only a small dent in the greenback’s dominance
Transactions involving yuan jumped by a whopping 70 percent in the last three years, yet, it accounts for only seven percent of that total of international transactions. This shows that dislodging of the dollar as a global anchor currency will not happen anytime soon
May 05, 2023 / 05:45 PM IST
The dollar accounted for 88 percent of all foreign exchange trading, according to the Bank for International Settlements in 2022. The Fed estimates that between 1999 and 2019 the dollar accounted for 96 percent of trade invoicing in the Americas, 74 percent in the Asia-Pacific region and 79 percent in the rest of the world. Banks used the greenback for around 60 percent of all international deposits and loans.
Transactions involving yuan jumped by a whopping 70 percent in the last three years, yet, it accounts for only seven percent of that total of international transactions. Besides, disclosures around China’s capital markets are not very straightforward.
If the world wants to reduce reliance on dollars, it would need to deleverage a part of the global debt. But that’s a very slow process. According to BIS, dollar-denominated credit to non-banks outside the US stood at ~$12.8 trillion, which is ~60 percent of foreign currency debt. Barring the Euro, no currency has more than 2-3 percent share in foreign currency debt issuance, which also shows the supremacy of the US dollar. The sheer size of the US economy and other critical elements such as trust in an asset as a store of value, size and depth of financial instruments available to investors, standardisation of capital markets, ease of accessing capital, the highly liquid nature of dollar, easily convertibility and the vast worldwide circulation together make the dollar the heart of world finance.
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Vikram Kotak is co-founder and managing partner, Ace Lansdowne Investments. Views are personal, and do not represent the stand of this publication.
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