De-dollarization is 'a myth,' and there's no big shift taking place away from the US currency, commodities expert says
Reuters/Petar Kujundzic
- De-dollarization fears just don't square with reality, according to one commodities expert.
- Jeffrey Christian, the founder of CPM Group, pointed to signs that the US dollar was still in high demand.
- Practically no one is phasing out the dollar for trade or foreign reserves, he said.
De-dollarization is a "bad joke," and practically no one is dumping the greenback, according to commodities expert Jeffrey Christian.
Christian, a leading commodities analyst and the founder of CPM Group, pointed to rising fear the the US dollar could soon be displaced as the dominant currency in global financial markets.
More countries, like Russia, China, and other BRICS states, have expressed interest in shifting away from dollar-based trade. Yet, the idea that anyone is abandoning the greenback on a significant level isn't grounded in reality, Christian said.
"It's a myth, and it's nonsensical, and it's very persistent. It's frighteningly persistent. No one is dumping dollars," Christian said of de-dollarization in a recent presentation.
Market commentators who have been warning of a concerted effort to de-dollarize the global economy, pointing to the dollar's declining usage in world trade and as a central bank reserve currency.
But the decline isn't as steep as some make it out to be, Christian said, pointing to international trade data. The dollar accounted for 88% of all daily currency transactions as of April 2022, according to the Bank of International Settlements.
Central banks aren't shedding the greenback either, Christian noted. The dollar also accounted for 54% of all foreign exchange reserves in the fourth quarter of 2023, down slightly from the 54.8% recorded in the fourth quarter of 2021, International Monetary Fund data shows.
Dollar holdings still outpace those of other foreign currencies by a wide margin. Its closest competitor, the euro, accounted for just 19% of all central bank reserves in 2022, down from around 29% several decades ago.
"There has been a diversification of central bank foreign exchange holdings, but it's not at the expense of the dollar, and it's not away from the dollar," Christian said.
Meanwhile, the dollar has also increased in value over the last decade, which in itself is a sign that the currency is in demand. The US Dollar Index, which weights the greenback against a basket of foreign currencies, has climbed nearly 40% since its trough in 2011.
"Clearly people are buying dollars in a much greater volume than they are selling dollars," Christian said. "De-dollarization is a myth, a joke, nonsense, whatever you want to call it, but you can't call it a fact and you can't call it a reality," he later added.
Other economists have also dismissed the idea that the US dollar is being phased out. It takes decades to displace a currency once it's seen as a safe haven, economists previously told BI.
Though the greenback faces challenges, there's no question about its dominant incumbent position, Federal Reserve Governor Chris Wallace said at a conference on Monday.
"The role of the US in the world economy is changing, and finance is always changing," Wallace said. "The dollar remains by far the most widely used currency by a number of metrics."