The World’s Dollar Addiction Is Hard to Kick
Many central banks and governments around the world want to kick their dollar addiction. They aren’t getting very far—except when forced. The percentage of official foreign-exchange reserves allocated to U.S.
dollars globally was 58.9% in the second quarter of the year, figures published a few days ago by the International Monetary Fund show, broadly unchanged from the 25-year-low first reached in the fourth quarter of 2020. Though the dollar serves as the bedrock of international financial markets, the backlash against globalization in recent years has prompted much talk of “de-dollarization." Since Russia’s invasion of Ukraine, which dealt another blow to the established order, dollar reserves have fallen 2.9%, despite a jump in the currency’s value. At constant exchange rates, the drop would have been 6.6%.
In July, only about 30% of Russia’s export transactions were in dollars and euros, compared with roughly 85% at the start of 2022, a report by the Bank of Russia suggests, thanks to a jump in ruble settlements and the introduction of the Chinese yuan. The country’s sovereign-wealth fund is also saving in yuan, as are some households. Indeed, some reserve managers have turned to the Chinese currency, and President Xi Jinping is intent on promoting the habit.
IMF data shows that renminbi reserves have tripled since 2016. Brazil has embraced it as a trade and reserve currency, with President Luiz Inácio Lula da Silva recently urging emerging nations to diversify away from the dollar. Argentina, which has been left without dollars following hefty payments to the IMF, has resorted to swapping yuan with the People’s Bank of China in exchange for wider adoption of the Chinese currency.
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