Still No.1 but its clout is on the wane:
- Now makes up 61% of global reserves - down from 70% a decade ago
- IMF deputy director has called for de-dollarization in emerging markets...
- ...which many countries are infact attempting
This article originally appeared at GoldCore
Currency wars and the growing trend away from dollar dominance in international finance, particularly in emerging markets, was highlighted in an interesting CNBC article this morning entitled “Is the Dollar Losing its Clout Among EMs?”
It refers to the deliberate and stated policy of “de-dollarisation” around the world, the decline in the use of the dollar in international trade and as a reserve currency and the emergence of the new BRICS bank.
The article quotes best-selling author and Pentagon insider, Jim Rickards. Rickards says that the status of the dollar as a reserve currency is still solid despite its decline over the past decade and despite the rise of other currencies in international transactions.
“The dollar is declining as a trade currency, but it remains strong as a reserve currency. Right now, it’s around 61 percent of global reserves, versus 70 percent over a decade ago” he said.
Meanwhile, figures from the BIS and SWIFT show that the yuan is now among the top ten traded currencies in the world. While this is significant it should be seen in the context that the dollar still being used in 80% of global trade.
Chinese ambitions in this area are clear, however. China is negotiating currency settlement deals in local yuan with many of its trading partners. Zero Hedge ran an article last week on a billboard advertisement in Bangkok from the Bank of China declaring the RMB to be “the world currency”.
“And it’s true,” they added, “the renminbi’s importance in global trade and as a reserve currency is increasing exponentially, with renminbi trading hubs popping up all over the world, from Singapore to London to Luxembourg to Frankfurt to Toronto.”
Last month the Deputy Managing Director of the IMF, Japan’s Naoyuki Shinohara, openly stated that emerging markets in Asia should begin the process of de-dollarisation “to mitigate against external shocks and constraining the central bank’s ability as lender of last resort.”
This is interesting as the IMF has historically been one of the main agents of dollar hegemony. We believe it demonstrates the level of risk now extant in the system that the IMF should be promoting a move away from the dollar, possibly towards Special Drawing Rights (SDRs).
China and Russia have negotiated currency arrangements excluding the dollar in recent years. Kazakhstan has also explicitly announced a process of de-dollarization, in an attempt to bolster the local currency, the tenge.
Russia is in negotiations with India and Egypt to settle their trade in local currencies.
The BRICS development bank is now operational which will see countries who avail of it repaying loans probably in yuan, given that China provides over 40% of the funding. It will act as a rival to the IMF which may explain why the IMF is taking a more inclusive approach to currency reserves.
Currency wars are set to intensify and competitive currency devaluations accelerate. When that happens, gold will again become an important monetary and geo-political asset for central banks and a vital safe haven asset for investors and savers.