The US Dollar continues to hold its position as the world’s primary reserve currency, with neither the euro nor the BRICS nations successfully reducing global reliance on it, according to a recent study by the Atlantic Council’s GeoEconomics Center.
The “Dollar Dominance Monitor,” a key report from the group, underscores that the dollar maintains its supremacy in foreign reserve holdings, trade invoicing, and currency transactions worldwide. The study reaffirms the dollar’s status as the foremost global reserve currency, suggesting that this dominance is secure for the near and medium term.
The robust state of the U.S. economy, combined with tighter monetary policy and heightened geopolitical risks, has further bolstered the dollar’s dominance. Even as economic fragmentation drives BRICS countries to explore alternative international and reserve currencies, the dollar’s position remains largely unchallenged.
Western sanctions on Russia, implemented by the Group of Seven advanced economies following Moscow’s invasion of Ukraine, have spurred the BRICS nations to accelerate their efforts towards de-dollarization. However, the Atlantic Council’s report indicates that these efforts have yet to yield significant progress.
The BRICS group, comprising Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates, has been striving to develop a currency union. Despite this push, tangible advancements in reducing dependency on the U.S. dollar have been minimal.
China’s Cross-Border Interbank Payment System (CIPS) has seen notable growth, adding 62 direct participants in the 12 months leading up to May 2024—a 78% increase, bringing the total to 142 direct participants and 1,394 indirect participants. While this expansion indicates China’s commitment to enhancing renminbi (RMB) liquidity and internationalization, the overall impact on reducing dollar reliance remains limited.
Negotiations around an intra-BRICS payment system are still in the early stages. Although bilateral and multilateral agreements within the BRICS group could potentially lay the groundwork for a future currency exchange platform, these agreements are currently negotiated on an individual basis, which hampers scalability, according to the report.
China has been actively promoting renminbi liquidity through swap lines with its trading partners. However, the share of the renminbi in global foreign currency reserves has dropped to 2.3%, down from a peak of 2.8% in 2022. The decline is attributed to concerns among reserve managers about China’s economic stability, Beijing’s stance on the Russia-Ukraine conflict, and the potential for a Chinese invasion of Taiwan, all of which contribute to the perception of the renminbi as a geopolitically risky reserve currency.
The euro, once seen as a potential rival to the dollar’s international role, is also facing challenges. The report notes that those seeking to mitigate risk exposure are increasingly turning to gold rather than the euro. Western sanctions on Russia have highlighted the geopolitical vulnerabilities of the euro, similar to those of the dollar. Additionally, concerns about macroeconomic stability, fiscal consolidation, and the absence of a unified European capital markets framework have further diminished the euro’s appeal as an alternative global currency.
In summary, the Atlantic Council’s report provides a comprehensive overview of the current landscape of global currency dynamics. The U.S. dollar’s entrenched position as the dominant reserve currency appears unshaken by the efforts of BRICS nations and the eurozone. While there are ongoing initiatives to challenge this dominance, the inherent geopolitical and economic complexities suggest that the dollar’s primacy will endure for the foreseeable future. The report underscores the importance of robust economic policies and strategic geopolitical positioning in maintaining currency dominance in the global economy.
