De-dollarization is not a new phenomenon, but a complex long-term policy. For more than half a century, the U.S. dollar has been the standard reserve currency used in world trade and financial settlements, with oil, gold, and most commodities denominated in U.S. dollars, and many countries holding dollar reserves mainly in the form of U.S. Treasuries.
So, de-dollarization describes a shift from this world order to countries selling their U.S. debt to hold other currencies or gold reserves. At the same time, they seek to use their own currencies to trade between important trading partners. While the dollar continues to play a central role in the foreseeable future, the current structural trend towards dollarization has begun to diminish its importance, as has the purchasing power value of the dollar.
The purchasing power of the US dollar continues to decline
The mechanism behind the current dollar anchoring the boundary of the expansion of the US treasury and issuing is well known, for half a century, the US treasury has been acting as the foundation and new carrier of the US dollar through the "petrodollar", but now, the influence of the petrodollar system has begun to decline continuously, and at the same time, the current news and data have also shown that the US treasury is being moved away by the global central bank institutions, which indicates that the foundation of the US dollar has been shaken.
Goldman Sachs' April 25 report said U.S. Treasuries are becoming less attractive relative to alternatives and that the de-dollarization efforts of official institutions around the world should see a plunge in foreign demand for U.S. treasuries in the coming quarters. What is more worrying to the market is that the Federal Reserve, the largest buyer of US Treasuries, is also expected to start selling US Treasury assets at a monthly scale of 95 billion yuan in May (quantitative tightening), which will further weigh on long-term US Treasuries.
The World Gold Council also explained in a report released before April 26 that the using of the us dollar as a tool for financial and economic sanctions will weaken the safe-haven properties of dollar assets, making global US debt buyers prohibitive, thereby diversifying the risk of US dollar exposure and turning to strategic assets such as gold.
Immediately after, the U.S. quartz website quoted the analysis of the debt king Gross said that with the rise of interbank offered interest rates, inflation at a high level of 41 years hedged part of the income of U.S. bonds, which is equivalent to a hidden default, so that large institutional investors of U.S. bonds, including China, Japan and other cornerstone levels, may continue to sell U.S. bonds in the future, if the U.S. inflation continues to be high and the risk of uncertainty increases, it is not ruled out that there is a possibility of clearing U.S. bonds, in fact, in the past five years, The total amount of US Debt purchased by the global central bank is not proportional to the number of US large water printing banknotes, please refer to the chart below for specific data.
And just when many people are still immersed in the world of the rise of the dollar index, at present, the voice of de-dollarization or circumvention of dollar trading around the world has risen and fallen, the dollar has long lost the label of trust, people's confidence in the dollar has begun to break again (the last time was the dollar out of the gold standard and the dissolution of the Bretton Woods system, please refer to the figure below for details), the world's many countries have the need to choose a new reserve currency or oil currency, the latest news and data are feeding back this trend.
BWC Chinese Network International Finance research team also noted that since the Russian-Ukrainian conflict, from the IMF to Goldman Sachs, to JPMorgan Chase and U.S. economists, they are now increasingly worried that U.S. sanctions on Russia may weaken the status of the dollar, the long-term challenge facing the United States will be to maintain the crown of the dollar as the world's main reserve currency, but as the world moves towards multipolarization, the power and status of the dollar is weakening.
According to a report released by the Institute of Financial Telecommunications of Global Banks (SWIFT) in April, the share of global usage of the US dollar in March fell from 43.5% in March to 41.07% in March this year, and the IMF's report in March also showed that the proportion of the US dollar in the global central bank's international foreign reserve unexpectedly fell to a 26-year low of 59.32% in the fourth quarter of last year, please note that this proportion was as high as 71% in 2000 (please refer to the chart below for details). We also note a rare decline in the purchasing power of the United States dollar following the 2008 subprime mortgage crisis.
The dollar's share of global reserves has changed
There is no doubt that at present, the butterfly effect of global de-dollarization has begun, and the label known as "US dollar" at that time is being washed away by the wave of de-dollarization, but considering that the US dollar is still the investment currency, settlement currency, reserve currency and safe-haven currency of global financial assets, so any major change away from the US dollar will not happen overnight, but the BWC Chinese network finance team has seen some initial de-dollarization. Some countries have now allowed them to trade in their national currencies while avoiding the dollar, and de-dollarization will enter a new phase.
In a report published a week ago, Goldman Sachs warned that "the challenges facing the dollar now are similar to those faced by the pound in the mid-last century when the pound was lost trust by the world." In a report published in March, JPMorgan chase & Co. argued that "the dollar becoming a tool to limit Russia's financial system would greatly promote the maturity of a settlement system independent of the dollar and force a rethinking of the quality of the dollar" because SWIFT, which was indirectly controlled by the United States, failed to adhere to its founding purpose of becoming a neutral financial platform and became a simple tool of the West. So, in the long run, this will actually pit the dollar and "destroy the dollar's reserve currency status."
India is currently buying Russian oil at a discounted price, and Russia and India are working to establish a new trading mechanism for bilateral trade that will allow settlement in local currency, the Economic Times of India reported on April 23. More importantly, India is looking forward to having a digital currency in the near future, in which case the rupee-ruble settlement will be another step in the de-dollarization of the global economy, so it is possible to start with Russian-Indian transactions and become a reality in digital currency trade with Iran, the Eurasian Economic Union and the SCO economies, and some signs of this are already visible.
According to The Cradle website on April 25, Sergei, a member of the State Financial Council of the Bank of Russia, proposed a new global financial system based on digital currencies and backed by a new basket of foreign currencies and natural resources (anchors).
Therefore, such a result is that digital currencies supported by local currencies or strategic natural resources such as gold, oil, and diamonds will slowly be at the center of the global central bank monetary system and will run parallel to the US dollar. This means that countries subject to the U.S. financial system, including Russia and Iran, will benefit from the global de-dollarization lead, and the de-dollarization butterfly effect will intensify, this time driven by blockchain technology that supports decentralization, according to the Bank for International Settlements, the global public health crisis has prompted global central banks to accelerate the adoption of digital payments and encrypted digital currencies, moving away from the use of paper money.
According to the IMF, as of March, 105 currency authorities were engaged in digital currency-related work, some countries had issued cryptocurrencies that anchored strategic resources, and others were running or planned to run on the blockchain with local currency credit value.
For example, as of March, as of March, several countries, including China, the United Kingdom, Germany, New Zealand, France, Canada, South Africa, Sweden, Vietnam, Switzerland, the Bahamas, Malaysia, the United Arab Emirates, Uganda, Kenya, Saudi Arabia, Israel, Venezuela, Turkey and Singapore, were testing or using digital currencies, or had issued cryptocurrencies that anchored strategic resources such as gold, diamonds or oil. U.S. authorities reportedly signed a presidential decree on digital asset research and development in March, including a CBDC.
For example, South Africa's bank announced on April 6 that it had successfully tested its second central bank digital currency pilot project, Khokha, in February, and had also participated in the CBDC pilot project Dunbar with Singapore, Malaysia and Australia. German authorities also said on April 22 that the country would be fully committed to digital monetization, and even several countries in Latin America that have dollarized economies have officially announced the replacement of the dollar with encrypted digital currencies to free the dollar from the shackles of the dollar.
BWC Chinese Network Finance and Economics research team exclusive analysis believes that under the influence of the new crown virus, the global monetary system has accelerated into a competitive era of becoming a leader in digital finance, and as more central banks around the world launch digital currencies, it may form a situation of coexistence and competition with cryptocurrencies.
In response, SWIFT Managing Director and Head of Innovation Nick Kerigan said on April 24 that the global central bank digital currency will become an important force in the future, stressing that SWIFT is in a unique position in terms of solutions to this challenge.
Reuters said on April 20 that at present, the central banks of European countries, the United Kingdom, Switzerland, Canada, Japan, Sweden and the Bank for International Settlements have jointly formed a digital currency development group. Even the IMF has hinted at plans to launch a global digital currency, the IMF Coin, under the SDR to replace the U.S. dollar.
Subsequently, according to a report released by the Bank of Japan on April 23, the bank announced that it had completed the first phase of its central bank digital currency proof of concept as planned and will begin the second phase of work in May, while the Ministry of Finance and Finance of Japan is also working with several of Japan's major banks to plan to establish an international network for encrypted digital currency payments, similar to SWIFT, around the world.
Since last year, Venezuela has officially settled its oil in an oil-based cryptocurrency. Immediately after, Iran also proposed the creation of PayMon, a cryptocurrency anchored by resources such as oil and gold, as one of several means of countering the dollar's economic dominance. Therefore, the digital currency that anchors the national currency developed based on blockchain technology as the core does not theoretically require technical support from the SWIFT system.
In fact, for many years, emerging economies and Europe have been working to build a new financial system that is not dependent on the US dollar, according to BWC Chinese Network continues to track statistics, including Russia, Germany, Italy, Armenia, Portugal, Kyrgyzstan, Iran, India, Lithuania, Qatar, the United Arab Emirates, Angola, Venezuela, Iraq, Brunei, Myanmar, Switzerland, Sweden, Cambodia, Kuwait, Nigeria, Pakistan, Cuba, Hungary, Brazil, South Africa, Indonesia, At least 39 representative countries, including Malaysia, Thailand, Romania, Spain, Ireland, the Netherlands, Kazakhstan, Belarus, Turkey, El Salvador, Paraguay and Ecuador, have begun the process of de-dollar centralization in their own way.
The BWC Chinese Network team has also summarized specific initiatives in global de-dollarization, including selling US Debt at a clearing rate (Russia, Turkey, etc.); increasing non-US monetary assets such as gold (Russia and some emerging market and European countries) to international reserve assets; abandoning the anchoring of the US dollar in exchange rates (Cuba, some central Asian countries, India, etc.); and trading goods by bypassing the US dollar and bartering (Iran, Venezuela, Pakistan, Sri Lanka, etc.) Measures such as local currency swap agreements between the world's major central banks; regional local currency swap cooperation and testing digital currencies endorsed by their own currencies, while according to the latest news, these measures will only increase, following the de-dollarization of 39 countries, the 40th country will also begin to de-dollarize, once again surprising investors.
According to the US financial website Zero Hedge reported on April 23, Israel is selling dollars in exchange for yuan, and the Bank of Israel's annual report released at the end of March said that the country has begun to increase the yuan, Canadian dollar, Australian dollar and yen in the $200 billion foreign reserves for the first time since 2022, while sharply reducing the proportion of dollars and euros to make room for new reserves held. The report shows that Israel has reduced the share of the euro from 30% to 20%, the us dollar has fallen from 67.4% held in 2020 to 61%, under the new adjustment, the proportion of the renminbi is 2%, the yen is 5%, and the currency of Canada and Australia is 3.5%, which also means that Israel has officially begun to de-dollarize in the field of foreign exchange.
The US media said that under the acceleration of the global de-dollarization process, the global monetary pattern is about to usher in meaningful changes, and Israel seems to be catching up, and hopes that other countries will follow suit. Just two weeks ago, Myanmar's central bank also issued an announcement requiring all Burmese citizens to convert their foreign currency and foreign exchange from the sea to Myanmar's dollars into Myanmar dollars in the state-licensed banking system, which also means that the Myanmar authorities have also begun to de-dollarize international reserve assets. In addition, Cuba's central bank also said in April that it asked foreigners not to bring dollars to the country and would no longer accept dollars. (End)