De-Dollarization Is Happening at a ‘Stunning’ Pace, Jen Says
https://finance.yahoo.com/news/dollarization-happening-stunning-pace-jen-082144378.html(Bloomberg) -- The dollar is losing its reserve status at a faster pace than generally accepted as many analysts have failed to account for last year’s wild exchange rate moves, according to Stephen Jen.
The greenback’s share in global reserves slid last year at 10 times the average speed of the past two decades as a number of countries looked for alternatives after Russia’s invasion of Ukraine triggered sanctions, Jen and his Eurizon SLJ Capital Ltd. colleague Joana Freire wrote in a note. Adjusting for exchange rate movements, the dollar has lost about 11% of its market share since 2016 and double that amount since 2008, they said.
“The dollar suffered a stunning collapse in 2022 in its market share as a reserve currency, presumably due to its muscular use of sanctions,” Jen and Freire wrote. “Exceptional actions taken by the US and its allies against Russia have startled large reserve-holding countries,” most of which are emerging economies from the so-called Global South, they said.
Jen is the former Morgan Stanley currency guru who coined the dollar smile theory.
The dollar is waning.
Smaller nations are experimenting with de-dollarization while China and India are pushing to internationalize their currencies for trade settlement after the US and Europe cut Russian banks from the global financial messaging system known as SWIFT. There’s also concern the dollar may become a permanent political tool, or be used as a form of economic statecraft to put extra pressure on countries to enforce sanctions that they may disagree with.
The US currency now represents about 58% of total global official reserves, down from 73% in 2001 when it was the “indisputable hegemonic reserve,” the Eurizon pair said.
That said, the dollar’s role as an international currency won’t be challenged anytime soon as developing countries don’t yet have the ability to divest from the greenback for transactions due to its large, liquid and well-functioning financial markets, Jen and Freire wrote.
