- US sanctions are pushing other countries to look for alternatives to the US dollar.
- Although de-dollarisation is rampant, the US dollar remains the dominant receive currency.
US Treasury Secretary Janet Yellen says that it is reasonable for countries to look for alternatives to the US dollar due to the current geopolitical evolution. Yellen addressed the State of the International Financial System meeting during The Annual Testimony of the Secretary of the Treasury. She says that US sanctions may trigger other nations to seek dollar alternatives, though it will take work.
Yellen conceded with Texas Representative Vicente Gonzalez Jr. that the current US sanctions might bring paranoia in other countries, and the nation’s foreign policies were forcing the other countries to develop business contingency plans.
It is true that when we impose sanctions, countries that are afraid that can be the subject of those sanctions are motivated to look for other tools other than the dollar to engage in transactions. So that’s something we have to accept. It is much more difficult to find other tools to make payments in other currencies when we work jointly with partners…
But I would say there is virtually no meaningful workaround for most countries for using the dollar as a reserve currency.
The US treasury secretary notes that other countries diversify their currency reserves to hold beyond the dollar. However, she says that this is expected of a growing world. Yellen says that the US should expect a gradual increase in other asset shares in other countries’ reserve accounts. Although asset diversification is a natural desire, the US remains a dominant reserve asset.
There’s been some increase in holdings in other reserve assets, but that’s something to be expected in a growing world, an economy where countries desire to diversify… We should expect over time, a gradually increased share of other assets in reserve holdings of countries. It’s a natural desire to diversify, but the dollar is far and away the dominant reserve asset.
Is De-dollarisation Happening?
Yellen’s remarks are in tune with the ongoing de-dollarisation news globally. The US dollar has been the world reserve currency for over 100 years since it replaced Great Britain’s pound in 1931. The dollar has been in use by central banks to settle international debts and conduct international transactions.
However, the dollar dominance in global reserves has steadily declined over the past 20 years from 70% to 60%, according to International Monetary Fund reports. The decline has, however, accelerated since 2022, when the US and its allies froze Russia’s dollar reserve after Russia invaded Ukraine.
Since last year, many countries have been actively looking for dollar alternatives, and some are discussing the creation of new global currencies and increasing their gold reserves.
There are also prospects that Bitcoin, the most established cryptocurrency, may benefit from this de-dollarisation movement.
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