Long live the slowly dying and unlamented US dollar

livemint.com:

A quiet but significant milestone was passed last year. For the first time in decades, by one estimation, the US dollar’s share in international reserves fell below 50%. Stephen Jen, a well-known currency analyst, estimates that the USD fell from about 73% of international reserves in 2001 to less than half in 2022.

Jen argues that the dollar’s stunning drop was seemingly quickened after the US decided to weaponize the dollar-based financial system against Russia. For emphasis, Jen says “what we witnessed in 2022 was sort of a ‘defund-the-global-police’ moment, whereby many reserve managers in central banks around the world disagreed with the conduct of both Russia and the US." In tandem, there has been much news of bilateral currency deals where commercial, trade and financial flows will take place without being intermediated by the dollar. China has dramatically increased its use of yuan to buy Russian commodities including oil, coal and some metals.

A significant portion of their roughly $90 billion in commodities trade will now be settled in yuan. The yuan’s share in Russia’s import settlements has now risen to almost 25% and is expected to rise further. Bilateral Swap Lines (BSLs) are arrangements whereby two countries agree to exchange currencies with one another, up to a pre-agreed limit or without any limit.

BSLs were pioneered by the US Federal Reserve to ensure that the Fed and the Bank of England, Bank of Japan, European Central Bank, Bank of Canada and Swiss National Bank would have unlimited access to each other’s currencies during liquidity crunches or times of crisis. Even today, the International Monetary Fund uses BSLs as a major tool to lend to countries in crisis. The gradual internationalization of