The USD Defines Its Position as Number One
The EduMatrix Channel needed to wait until the "big boys" summarized the numbers for the US dollar and the potential of a BRICS currency before gathering the information necessary to write this article.
This month, the BRICS summit in Johannesburg, South Africa, brought back the issue of DE- dollarization of the world economy. Despite lacking a place on the agenda, reducing the prevalence of the U.S. dollar in trade and financial transactions among the Global South was repeatedly mentioned by world leaders in attendance, including Brazilian President Luiz Inacio Lula da Silva who even called for the BRICS bloc to adopt a new common currency.
Based on trade and transaction data for the U.S. dollar in the past ten years, the currency has so far defended its major position on international markets. Compared to the United States' share in the international economy and in international trade, the dollar's influence has only lost small amounts, while it has expanded its reach in others. The dollar's role remains outsized when compared to the United States' share.
As a quarter of global GDP, the U.S. contributes to commodities and commercial services, but its share of global trade in commodities and commercial services is relatively low, at around 10%.
In this light, the U.S. dollar's role in global trade, reserves, and currency exchange that extends far beyond its country of origin becomes even more evident. The dollar continues to play an important role internationally because of the United States' role in global capital markets and international debt, reports Reuters.
In July, international SWIFT payments in U.S. dollars hit a new all-time high of 46.5% of all payments, an increase of 13 percentage points since December 2012. Chinese yuan, an obvious competitor to the dollar, also reached a new high—albeit at just 3% of international payments. In Q2 of 2023, the currency outperformed the dollar for the first time in cross-border transactions.
Foreign reserves have been an area in which the yuan has been more successful—albeit on a relatively small scale. As a result, the U.S. dollar has lost 2.5 percentage points over the last decade and 7.5 percentage points over the last twenty years, while the Yuan has increased from 1.1% of international reserves at the end of 2016 to 2.6% at present. More than 88% of foreign exchange transactions in 2022 involved the dollar, which makes it the biggest and most stable currency.
Recently, the Russian ruble was excluded from SWIFT payments due to their invasion of Ukraine in early 2022. This has sparked a reshuffling of currency alternatives to the dollar. India, buying oil from Russia, has done so partially in Chinese yuan. It was reported earlier this year that China has significantly increased the use of its own currency for commodities trade with Russia - though this doesn't make the yuan a global currency yet, it's indicative of the gradual steps being taken to challenge the US dollar's worldwide control.
