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11 months ago


The end of King Dollar? The forces at play in de-dollarisation

By Naomi Rovnick and Libby George

LONDON (Reuters) - Rivalry with China, fallout from Russia's war in Ukraine and wrangling once again in Washington over the U.S. debt ceiling have put the dollar's status as the world's dominant currency under fresh scrutiny.

Russia's sanctions-imposed exile from global financial systems last year also fuelled speculation that non-U.S. allies would diversify away from dollars.


Below are some arguments why de-dollarisation will happen - or possibly why it won't.

SLIPPING RESERVE STATUS

The dollar share of official FX reserves fell to a 20-year low of 58% in the fourth quarter of 2022, according to International Monetary Fund data.

Stephen Jen, CEO of Eurizon SLJ Capital Limited, said that shift was more pronounced when adjusted for exchange rate.

"What happened in 2022 was a very sharp plummeting in the dollar share in real-terms," Jen said, adding this was a reaction to the freezing of half of Russia's $640 billion in gold and FX reserves following its 2022 invasion of Ukraine. This had sparked a re-think in countries such as Saudi Arabia, China, India and Turkey about diversifying to other currencies.

TAKING THE LONGER VIEW

The dollar share of central banks' foreign reserves in the final quarter of 2022 did hit a two-decade low, but the move has been gradual and it is now at almost a similar level as







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