The study noted that China has been actively supporting yuan liquidity through swap lines with its trading partners, but the Chinese currency's share of global foreign exchange reserves has fallen to 2.3% from a high of 2.3%. 8% in 2022.
The dollar remains the world's main reserve currency and neither the euro nor the BRICS countries have managed to reduce global dependence on the US currency, according to a new study by the Atlantic Council's Geoeconomic Center.
According to the study titled "Dollar Dominance Monitor", the dollar continues to dominate foreign exchange reserves, turnover and monetary transactions around the world, and its role as the main global reserve currency is guaranteed in the short and medium term.
Dollar dominance (the US dollar's disproportionate role in the global economy) has recently strengthened due to the robust US economy, tighter monetary policy and rising geopolitical risks, even as economic fragmentation has strengthened pressure from the BRICS countries. to adopt other international policies. and reserve currencies.
The Atlantic Council report said that Western sanctions against Russia, imposed by the Group of Seven (G7) i.e. advanced economic countries, following Moscow's invasion of Ukraine, accelerated efforts by the BRICS countries to develop a monetary union, but the group failed to advance its de-dollarization efforts.
BRICS is an intergovernmental organization formed by Brazil, Russia, India, China and South Africa, originally, and now also includes the participation of Iran, Egypt, Ethiopia and the United Arab Emirates.
The council reported that China's Cross-Border Interbank Payment System (CIPS) 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.
Negotiations around a payments system within the BRICS are still in their early stages, but bilateral and multilateral agreements within the group could form the basis for an exchange platform over time.
However, these agreements were not easily scalable as they were negotiated individually, according to the report.
The study also noted that China has been actively supporting yuan liquidity through swap lines with its trading partners, but the Chinese currency's share of global foreign exchange reserves has fallen to 2.3% from a high of 2.3%. .8% in 2022.
"This is possibly due to reserve managers' concerns about China's economy, Beijing's stance on the Russia-Ukraine war and a possible Chinese invasion of Taiwan, contributing to the perception of the renminbi (as the yuan is officially called). in China) as a geopolitically risky reserve currency instrument," the report says.
The euro, once considered a competitor to the dollar's international role, was also weakening as an alternative currency, and those seeking to reduce their risk exposure were turning to gold, according to the report.
According to the document, Russian sanctions made it clear to reserve managers that the euro was exposed to geopolitical risks similar to those of the dollar. The report then says that concerns about macroeconomic stability, fiscal consolidation and the lack of a European capital markets union have also undermined the international role of the euro.
