US dollar's dominance secure, BRICS see no progress on de-dollarization
-report
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[June 25, 2024] By
Andrea Shalal
WASHINGTON (Reuters) - The U.S. dollar remains the world's primary
reserve currency, and neither the euro nor the so-called BRICS countries
have been able to reduce global reliance on the dollar, a new study by
the Atlantic Council's GeoEconomics Center shows.
The group's "Dollar Dominance Monitor" said the dollar continued to
dominate foreign reserve holdings, trade invoicing, and currency
transactions globally and its role as the primary global reserve
currency was secure in the near and medium term.
Dollar dominance — the outsized role of the U.S. dollar in the world
economy — has been strengthened recently given the robust U.S. economy,
tighter monetary policy and heightened geopolitical risks, even as
economic fragmentation has strengthened a push by BRICS countries to
shift into other international and reserve currencies.
The Atlantic Council report said Western sanctions on Russia imposed by
the Group of Seven advanced economies after Moscow's invasion of Ukraine
had accelerated efforts by the BRICS countries to develop a currency
union, but the group had been unable to make progress on its
de-dollarization efforts.
BRICS is an intergovernmental organization made up of Brazil, Russia,
India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab
Emirates.
The council said China's Cross-Border Interbank Payment System (CIPS)
added 62 direct participants in the 12 months to May 2024, an increase
of 78%, bringing the total to 142 direct participants and 1,394 indirect
participants.
Negotiations around an intra-BRICS payment system were still in the
nascent stages, but bilateral and multilateral agreements within the
group could form the basis for a currency exchange platform over time.
However, these agreements were not easily scalable, since they were
negotiated individually, the report said.
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U.S. currency is seen in this picture illustration taken March 6,
2020. REUTERS/Mike Segar/Illustration/File Photo
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It noted that China has actively supported renminbi liquidity
through swap lines with its trade partners, but the share of
renminbi in global foreign currency reserves dropped to 2.3% from
the peak of 2.8% in 2022.
"This is possibly because of reserve managers’ concern about China’s
economy, Beijing’s position on the Russia-Ukraine war, and a
potential Chinese invasion of Taiwan contributing to the perception
of the renminbi as a geopolitically risky reserve currency," the
report said.
The euro, once considered a competitor to the dollar's international
role, was also weakening as an alternative currency, with those
looking to reduce their risk exposure turning to gold instead, the
report said.
It said Russian sanctions had made it clear to reserve managers that
the euro was exposed to similar geopolitical risks as the dollar.
Concerns around macroeconomic stability, fiscal consolidation, and
the lack of a European capital markets union also hurt the euro’s
international role, it said.
(Reporting by Andrea Shalal; Editing by Andrea Ricci)
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