IS DE-DOLLARIZATION INEVITABLE?
DOI:
https://doi.org/10.51738/Kpolisa2024.21.1r.127nzlzKeywords:
de-dollarization, global monetary order, financial transactions, foreign exchange reserves, yuan, central banksAbstract
Relying on relevant studies of internationally recognized economists, using content analysis, synthesis, and comparison methods, we monitor the process of de-dollarization, i.e. phenomenon of establishing a new balance of power in the global financial order. The main intention of the work is to project future directions of international monetary policy by pointing out the institutional and other barriers to the internationalization of the main contender for the status of global currency — the Chinese renminbi. The aim of the work is to provide guidelines to the creators of domestic economic policy in the context of the increased importance of non-Western currencies, and consequently, the need to rebalance the foreign exchange reserves and create the necessary infrastructure for the increased use of the Chinese currency on the domestic foreign exchange market. We conclude that despite a certain weakening of the global importance of the US currency — especially from the beginning of 2022 — the process of dedollarization is in its initial phase, and that could last for decades. Namely, in order to form a multilateral currency system, taking into account the current hegemonic status of the dollar, a substantial increase in the use of other currencies is necessary. This applies to world trade crediting, where the greatest, but still limited, progress of the yuan is seen, but also to the other domains such as the allocation of central bank’s foreign exchange reserves, the securities’ denomination, and the invoicing of financial transactions in bilateral trade and other arrangements.
Downloads
References
Anstey, C. (2023, April 8). Larry Summers Says the Dollar Isn’t Losing Its Dominance in Global Economy. Bloomberg. https://www.bloomberg.com/news/articles/2023-04-21/summers-spurns-dedollarization-hype-flags-china-capital-flight
Arslanalp, S., Eichengreen, B. & Simpson-Bell, C. (2021, March 24). The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies. International Monetary Fund. https://www.imf.org/en/Publications/WP/Issues/2022/03/24/The-Stealth-Erosion-of-Dollar-DominanceActive-Diversifiers-and-the-Rise-of-Nontraditional-515150
Baxter, C. (2023, May 9). Is the US Dollars Dominance Under Threat? Morgan Stanley. https://www.morganstanley.com/ideas/dollarcurrency-2023
Chuluun, T. (2023, June 2). Ukraine war gives China’s yuan a needed boost. Asia Times. https://asiatimes.com/2023/06/ukraine-wargives-chinas-yuan-a-needed-boost/
Demertzis, M. (2023, April 25). De-dollarisation. Bruegel. https://www.bruegel.org/comment/de-dollarisation
Eichengreen, B. (2019). Two Views of the International Monetary System. Intereconomics 54, 233–236. https://doi.org/10.1007 /s10272-019-0830-3
Eichengreen, B., Macaire, C., Mehl, A., Monnet, E., & Naef, A. (2022). Is Capital Account Convertibility Required for the Renminbi to Acquire Reserve Currency Status? Banque de France. https://publications.banque-france.fr/en/capital-accountconvertibility-required-renminbi-acquire-reserve-currency-status
Eichengreen, B., Mehl, A. & Chitu, L. (2018). How Global Currencies Work, Past, Present and Future. Princeton: Princeton University Press.
Farhi, E. & Maggiori, M. (2017). A Model of the International Monetary System. Quarterly Journal of Economics, 133(1), 295–355. https://doi.org/10.1093/qje/qjx031
Fisher Investments Editorial Staff. (2023, May 12). Deep Dive: Why We Think De-Dollarization Fears Are Faulty Logic. Fisher Investments. https://www.fisherinvestments.com/en-us/insights/marketcommentary/deep-dive-why-we-think-dedollarization-fears-arefaulty-logic
Fried, D. (2023). The U.S. Dollar as an International Currency and Its Economic Effects. Congressional Budget Office. https://www. cbo.gov/publication/58764
Goldberg, L., Lerman, R., & Reichgott, D. (2022, July 5). The U.S. Dollar’s Global Roles: Revisiting Where Things Stand. Federal Reserve Bank of New York Liberty Street Economics. https://libertystreeteconomics.newyorkfed.org/2022/07/the-us-dollars-global-roles-revisiting-where-things-stand/
Gopinath, G., & Stein, J. (2021). Banking, Trade, and the Making of a Dominant Currency. Quarterly Journal of Economics, 136(2), 783–830. https://doi.org/10.1093/qje/qjaa036
HKIMR. (2023). China’s Increasing Global Financial Impact. Hong Kong Institute for Monetary and Financial Research (HKIMR). http://dx.doi.org/10.2139/ssrn.4372608
Horn, S., Parks, B. C., Reinhart, C.M., & Trebesch, C. (2023). China as an International Lender of Last Resort. National Bureau of Economic Research. https://doi.org/10.3386/w31105
Ito, H., & McCauley, R. N. (2020). Currency Composition of Foreign Exchange Reserves. Journal of International Money and Finance, 102, 102104. https://doi.org/10.1016/j.jimonfin.2019.102104
Jamrisko, M. & Carson, R. (2022, December 21). Suddenly Everyone Is Hunting for Alternatives to the US Dollar. Bloomberg. https://www.bloomberg.com/news/articles/2022-12-21/fxweaponization-supercharges-de-dollarization-drive
Lei, G., Chen, T., & Gu, J. (2023, May 2023). China Takes the Yuan Global in Bid to Repel a Weaponized Dollar. Bloomberg. https://www.bloomberg.com/news/articles/2023-05-03/world-stop-currency-china-takes-yuan-global-in-bid-to-repel-us-dollarusd
Lu, C. (2023, May 12). The Bid to Dethrone the Dollar. Foreign Policy. https://foreignpolicy.com/2023/05/12/dollar-dominance-globaltrade-china-yuan-brics-currency/
Malhotra, S. (2023, May 16). Why Countries are Accelerating ‘De-Dollarization’? Modern Diplomacy. https://moderndiplomacy.eu/2023/05/16/why-countries-areaccelerating-de-dollarization/
Mercurio, B., Buckley, R., & Fu, E. J. (2021). The Legitimacy of Capital Controls during a Retreat from Globalisation. International & Comparative Law Quarterly, 70(1), 59–101. https://doi.org /10.1017/S0020589320000433
Naef, A., Monnet, E., Macaire, C., Mehl, A., & Eichengreen, B. (2023, October 31). The renminbi’s unconventional route to reserve currency status. CEPR, VoxEU. https://cepr.org/voxeu/columns/renminbis-unconventionalroute-reserve-currency-status
Ogawa, E. & Muto, M. (2019). What Determines the Utility of International Currencies? Journal of Risk and Financial Management, 12(1), 10. https://doi.org/10.3390/jrfm12010010
PBoC. (2021). RMB Internationalization Report. The People’s Bank of China.
Reuters. (2023, September 29). US dollar share of global currency reserves stays flat in second quarter, IMF says. Reuters. https://www.reuters.com/markets/currencies/us-dollar-shareglobal-fx-reserves-stays-flat-q2-imf-2023-09-29/
RMB Tracker. (2023). RMB Tracker: Monthly reporting and statistics on renminbi (RMB) progress toward becoming an international currency. Swift. https://www.swift.com/about-us
Sjoholm, F. (2023). The Belt and Road Initiative: Economic Causes and Effects. Asian Economic Papers, 22(1), 62–81. https://doi.org/10.1162/asep_a_00861
Downloads
Published
How to Cite
License
Copyright (c) 2024 Goran Nikolić, Jelena Zvezdanović Lobanova, Milan Zvezdanović
This work is licensed under a Creative Commons Attribution 4.0 International License.