In a rapidly evolving global payments landscape, the dominance of the US dollar remains resilient even as new contenders emerge.
According to recent data from SWIFT, the dollar’s share of global payments has surged to 49.1% as of August 2024 – a 12-year high.
This comes amid growing calls from BRICS nations for “de-dollarization,” as they aim to reduce reliance on the USD, particularly in commodity-based transactions.
However, the data suggests that despite these efforts, the greenback’s position as the world’s reserve currency remains largely unshaken.
The Resilience of USD in Global Payments
The increase in USD usage for international transactions is striking, especially considering the steady push from BRICS countries (Brazil, Russia, India, China, and South Africa) to establish alternative payment systems.
These nations, which collectively represent nearly 45% of the world’s population, have taken steps to link their banks and create frameworks to facilitate cross-border payments in local currencies.
Despite these initiatives, the dollar’s share has jumped by 9% over the last two years, underscoring its continued importance in global finance.
Interestingly, this rise in the dollar’s dominance coincides with a drastic drop in the Euro’s share of global payments, which fell from 39% to 21% over the same period – the lowest level in a decade.
Once a strong rival to the USD, the Euro’s decline has raised questions among analysts and policymakers alike.
Martin Smith, Global Head of Markets Analysis at East & Partners, notes that while the dollar’s dominance remains “undisputed” amid the BRICS’ de-dollarization agenda, the Euro’s fall signals a significant shift in the global financial landscape.
Factors Fuelling USD Dominance and the BRICS Challenge
Several factors contribute to the dollar’s sustained dominance. The Federal Reserve’s aggressive monetary policies, including a cycle of interest rate hikes from near zero to 5.5% over 16 months, have strengthened the dollar’s position.
As inflation in the US drops to 2.4%, the economic environment has become more stable, making the USD an attractive choice for global trade settlements.
Additionally, the dollar is seen as a safe haven during geopolitical uncertainties, a sentiment echoed by JPMorgan Chase CEO Jamie Dimon, who has consistently warned of rising global instability.
Conversely, while BRICS’ efforts toward de-dollarization are notable, they face challenges in achieving widespread adoption.
Many countries, particularly developing ones, continue to rely on the stability and liquidity that the USD provides, particularly during economic turbulence.
This reliance makes it difficult for BRICS to promote local currencies in global trade, especially as these currencies lack the robustness needed to withstand market volatility.
The Rise of the Chinese Yuan
The only currency that has managed to gain traction is the Chinese yuan, which has seen its share of global payments rise from 2% in 2023 to nearly 5% in 2024.
This marks a record high, reflecting Beijing’s strategic push to increase the yuan’s role in international finance.
The yuan has now maintained a share above 4% for nine consecutive months, securing its position as the fourth most-used currency in the global payments landscape.
China’s efforts are part of a larger ambition to reduce the influence of the USD and reshape the international monetary system.
However, despite these advances, the yuan’s limited convertibility and the closed nature of China’s financial system continue to pose significant barriers.
While the yuan is growing in prominence, it remains far from overtaking the USD’s position in global payments.
Will De-Dollarization Succeed?
While BRICS nations continue to advocate for de-dollarization, the recent SWIFT data suggests that the US dollar’s dominance remains steadfast.
Efforts to diversify away from the dollar are further complicated by the inherent need for a stable, universally accepted currency in international transactions – something the USD provides uniquely well.
As global payment flows are expected to grow by 53% from 2023 to 2030, reaching a projected $290 trillion, the demand for secure and reliable payment systems will likely reinforce the dollar’s position.
While the push for de-dollarization highlights a shift in global dynamics, the US dollar remains deeply entrenched in the global financial system.
As emerging economies continue to explore alternatives, the USD’s stronghold appears resilient, underscoring its unmatched stability and trust in the face of challenges.
For now, the greenback continues to be the currency of choice in an increasingly interconnected world.
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