Monitoring Dollar Dominance

Contents

1. Intro:

2. Dollar dominance remains strong in reserves, trade, and transactions

   1. Key takeaways

3. BRICS and dedollarization: What is Happening?

4. BRICS and dedollarization: Why is it Happening?

   1. WHY BRICS?

   2. WHY RMB?

   3. WHY CIPS?

   4. WHY SWAP LINES?

5. What is Happening and Why By Country

   1. Brazil

   2. Russia

   3. India

   4. China

   5. South Africa

6. What does it take to be a reserve currency?

7. Tracking the dollar’s international use

   1. Renminbi has not yet made inroads in international reserves

   2. Dollar overwhelmingly remains the vehicle currency in global finance

   3. The dollar, euro, and pound dominate international debt markets

   4. The international banking system

1- Intro:

The US dollar has served as the world’s leading reserve currency since World War II. Today, the dollar represents 58 percent of the value of foreign reserve holdings worldwide. The euro, the second-most-used currency, comprises only 21 percent of foreign reserve holdings.

Atlantic Council

But in recent years, and especially since Russia’s invasion of Ukraine and the Group of Seven (G7)’s subsequent escalation in the use of financial sanctions, some countries have been signaling their intention to diversify away from dollars.

Over the past twenty-four months, the BRICS (a grouping of Brazil, Russia, India, China, and South Africa) has been actively promoting the use of national currencies in trade and transactions. During this same time, China has been expanding its alternative payment system to its trading partners and seeking to increase international usage of the renminbi.

This first-of-its-kind project on dollar dominance by the Atlantic Council’s GeoEconomics Center

• Analyzes why the dollar is currently the world’s dominant reserve currency,
• Presents indicators for tracking China’s progress in creating an alternative financial infrastructure, and
• Creates a novel framework and data set for evaluating strengths and weaknesses of the world’s major currencies.

2- Dollar dominance remains strong in reserves, trade, and transactions

Indicator Definitions¹

Key takeaways

The dollar’s role as the primary global reserve currency is secure in the near and medium term. The dollar continues to dominate foreign reserve holdings, trade invoicing, and currency transactions globally. All potential rivals, including the euro, have a limited ability to challenge the dollar in the immediate future.

All five BRICS members are seeking to reduce their reliance on the dollar. The group has so far been unable to make significant progress on dedollarization efforts, including the creation of a common currency. However, because of their combined share of global GDP, BRICS can pose a long-term challenge to the dollar’s hegemony.