Dollar’s Dominance Eroded at 10 Times the Pace Seen in Past 2 Decades

• According to Eurizon strategists, the status of the US dollar as a reserve currency has gradually declined over the past two decades.
• But last year, amid currency sanctions against Russia, the pace of erosion was ten times faster.
• Eurizon said the dollar’s dominant role in international trade is unlikely to change anytime soon.

According to Eurizon SLJ Asset Management, the dollar’s status as the reserve currency of choice declined sharply in 2022, despite the dollar’s strength in international trade remaining unshakeable.

Strategists Joana Freire and Stephen Jenn said in a note Monday that the US dollar accounted for about two-thirds of total global reserves in 2003, rising to 55% in 2021 and 47% last year. I calculated.

“The 8% decline over the past year is exceptional and represents 10 times the average annual rate of erosion of US dollar market share over the past few years,” the authors said.

Especially after the start of the war in Ukraine, the depreciation of the dollar as a key currency accelerated.

“Exceptional actions,” namely the sanctions imposed on Moscow by the United States and its allies, have discouraged many countries from holding onto the dollar, the report said.

After Russia invaded Ukraine last year, Western powers cut Russia largely from the global financial system and froze its foreign exchange reserves, forcing the Kremlin to rely more on the yuan.

Meanwhile, the euro’s share as a reserve currency has risen by about 5%, to the same level as in 2003, effectively wiping out a 20-year loss, Eurizon said.

Meanwhile, the Chinese renminbi continued to appreciate at its normal pace, and last year saw no significant gains as a global reserve currency.

Indeed, no other currency challenges the dollar’s dominance in international trade. According to Eurizon, it remains the main pipeline for cross-border trade.

Citing data from the Bank for International Settlements’ triennial foreign exchange survey, the dollar accounted for 85% of all currency turnover in 2010, compared with an 88% market share in 2022, the memo said. says.

“The dollar’s decline as a reserve currency has accelerated at an alarming pace in recent years, especially since the start of the Ukraine war, but the dollar may continue to enjoy international currency dominance for some time. high” added.

Fitch Solutions, on the other hand, said the dollar’s dominance would wane over time, but that a “paradigm shift” would not occur given the lack of viable alternative currencies for international trade.