Calls to move away from relying on the U.S. dollar for trade are growing.
More and more countries — from Brazil to Southeast Asian nations — are calling for trade to be carried out in other currencies besides the U.S. dollar.
The U.S. dollar has been king in global trade for decades — not just because the U.S. is the world’s largest economy, but also because oil, a key commodity needed by all economies big and small, is priced in the greenback. Most commodities are also priced and traded in U.S. dollars.
But since the Federal Reserve embarked on a journey of aggressive rate hikes to fight domestic inflation, many central banks around the world have raised interest rates to stem capital outflows and a sharp depreciation of their own currencies.
“By diversifying their holdings reserves into a more multi-currency sort of portfolio, perhaps they can reduce that pressure on their external sectors,” said Cedric Chehab from Fitch Solutions.
To be clear, the U.S. dollar remains dominant in global forex reserves even though its share in central banks’ foreign exchange reserves has dropped from more than 70% in 1999, IMF data shows.
The U.S. dollar accounted for 58.36% of global foreign exchange reserves in the fourth quarter last year, according to data from the IMF’s Currency Composition of Foreign Exchange Reserves (COFER). Comparatively, the euro is a distant second, accounting for about 20.5% of global forex reserves while the Chinese yuan accounted for just 2.7% in the same period.
China is one of the most active players in this push given its dominant position in global trade right now, and as the world’s second largest economy.
Based on CNBC’s calculation of IMF’s data on 2022 direction of trade, mainland China was the largest trading partner to 61 countries when combining both imports and exports. In comparison, the U.S. was the largest trading partner to 30 countries.
“As China’s economic might continues to rise, that means that it’ll exert more influence in global…
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