The US Dollar Is Losing Its Reserve Currency Status: Here Is What You Should Know
By Genevieve Roch-Decter, CFA
Over the last week there has been a lot of chatter about the US dollar losing its reserve currency status. Various countries like Russia and China are bypassing the US dollar to settle trade deals. Some of this is because countries like Russia and Iran are heavily sanctioned and have no other choice but transact in something other than the US dollar. With that said, there is a lot of nuance to this narrative. Genevieve Roch-Decter dives into this topic in this thread and breaks down what this actually means.
In 1944, the Bretton Woods Agreement established the US Dollar as the world’s reserve currency
44 countries agreed to a global monetary system that would be underpinned by the US Dollar, which in turn was backed by gold.
That system was done away with in 1971:
Historically, the US dollar has been a safe haven for international investors.
In times of crisis, money often flows into the US dollar as investors seek refuge from trouble in other economies.
But 2014 was a huge turning point:
Russia and China looked to shift the paradigm
They no longer wanted to rely on the US dollar for international trade and investment
This trend is called “De-Dollarization”
De-Dollarization is happening everywhere
Central Banks bought gold at a faster pace last year than they have in any year since 1987
This signals a desire for countries to back their own currencies with gold rather than the US Dollar
Today, trade is shifting away from the purview of the United States Dollar
Take a look at how the volume of Chinese-Russian trade denominated in Yuan has spiked since the start of 2022:
Grit Capital @Grit_Capital
Other markets are shifting to the Yuan as China becomes a more influential superpower
Wall Street Silver @WallStreetSilv
But this fight is far from over for the Dollar.
The Dollar still dominates foreign exchange reserves, but that lead is slowing being chipped away
Here’s a chart from the Federal Reserve that shows how foreign exchange reserves have changed since 2000. The dollar has been slowly but steadily losing its share of foreign reserves:
Does this mean the US Dollar is doomed?
Not at all. It’s still considered one of the most stable currencies, if not the most stable currency in the world.
There is still a strong demand for US Dollars. But now, the dollar has some serious competition.
Another one:
unusual_whales @unusual_whales
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