Written by Andrea Shalal
WASHINGTON (Reuters) – A new study by the Atlantic Council’s Center for Geo-Economics showed that the US dollar is still the world’s main reserve currency, and neither the euro nor the so-called BRICS countries have been able to reduce global dependence on the dollar.
The group’s “Dollar Dominance Monitor” report said that the dollar still dominates foreign reserve holdings, trade bills and currency transactions globally, and that its role as a major global reserve currency is secure in the near and medium term.
Dollar dominance – the outsized role the US dollar plays in the global economy – has strengthened recently given the strong US economy, tighter monetary policy and rising geopolitical risks, even as economic fragmentation has strengthened the BRICS countries’ push to turn to other international and global markets. Reserve currencies.
The Atlantic Council report said that the Western sanctions imposed by the Group of Seven on Russia after Moscow’s invasion of Ukraine contributed to accelerating the efforts of the BRICS countries to develop a monetary union, but the group was unable to make progress in its efforts to get rid of the dollar. .
BRICS is an intergovernmental organization consisting of Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia and the United Arab Emirates.
China’s cross-border interbank payment system added 62 direct participants in the 12 months to May 2024, an increase of 78%, bringing the total to 142 direct participants and 1,394 indirect participants, the council said.
Negotiations on a payment system within the BRICS group were still in their early stages, but bilateral and multilateral agreements within the group could form the basis for a currency exchange platform over time. However, the report said that these agreements were not easily scalable, as they were negotiated individually.
He noted that China has actively supported liquidity through swap lines with its trading partners, but the share of the renminbi in global foreign exchange reserves has fallen to 2.3% from a peak of 2.8% in 2022.
“This may be due to reserve managers’ concerns about the Chinese economy, Beijing’s position on the Russia-Ukraine war, and a potential Chinese invasion of Taiwan that contribute to the perception of the renminbi as a geopolitically risky reserve currency,” the report said.
The euro, once considered a rival to the dollar’s international role, is also weakening as an alternative currency, with those looking to reduce their risk exposure turning to gold instead, the report said.
She said that the Russian sanctions made it clear to reserve managers that the euro was exposed to similar geopolitical risks as the dollar. He added that concerns about macroeconomic stability, financial consolidation, and the lack of a union for European capital markets also harm the euro’s international role.