Signs of de-dollarisation are unfolding in the global economy, strategists at the biggest US bank JPMorgan said yesterday, although the currency should maintain its long-held dominance for the foreseeable future.
The strains of steep US interest rate rises and sanctions that have frozen Russia out of the global banking system have seen a fresh push by the ‘BRICS’ nations, Brazil, Russia, India, China and South Africa, to challenge the dollar’s hegemony.
JPMorgan strategists Meera Chandan and Octavia Popescu said that while overall dollar usage is within its historical range and the greenback remains at the top of the pack, a closer look shows a more bifurcated picture.
Their assessment on the dollar is the most high profile by any large US bank so far, although heavyweight money managers such as Goldman Sachs Asset Management have aired similar views.
While the greenback’s share of FX trading volumes remains just shy of record highs at 88 per cent and its use in trade invoicing has not changed much over the last couple of decades, other areas have seen an erosion.
In the FX reserves held by central banks around the world, for example, its share has declined to a record low of 58pc.
Although that is still by far the largest share of any global currency, it drops further when accounting for gold, which now comprises 15pc of reserves versus 11pc five years ago.
“Some signs of de-dollarisation are emerging,” JPMorgan’s analysts said, adding the trend was likely to persist even as the dollar maintains its ‘large footprint’.
Efforts by BRICS countries and other major commodity exporters to loosen the dollar’s stranglehold on global commerce have ramped up since the start of the war in Ukraine, which saw the US freeze a large chunk of Russia’s foreign reserves.
Since then Saudi Arabia and China have begun talks to settle Chinese oil sales with the yuan, Brazil and China have announced the phase-in of a yuan clearing arrangement for some trade between the two countries while China and Russia are also now doing a significant portion of their trade in yuan.
China’s yuan now accounts for a record but still small 7pc of FX trading volume, while the euro’s slice has shrunk eight percentage points over the last decade of ultra low interest rates to 31pc.
Trade invoicing has not seen much change, with the dollar and euro maintaining a steady 40-50pc share over recent decades, although the US share of global exports is now estimated at a record low 9pc compared to record high 13pc for China.
Progress in internationalising the yuan has been limited, meanwhile, JPMorgan added, and is unlikely to change much given the country’s capital controls.
The ‘CNY’ is 2.3pc of SWIFT payments, JPMorgan’s analysts said, versus 43pc for the dollar and 32pc for the euro.
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