Why forecasts of the dollar’s death as the world’s top currency are highly exaggerated
To say the roof hasn’t caved in on the dollar is an understatement. Despite the doomsaying that was pervasive after the White House imposed sweeping tariffs, the greenback is as entrenched in the cogs of global finance as ever. If anything, its use is more pervasive.
It would probably be too much to hope for some reflection on the part of the ‘sell America’ crowd that grabbed the microphone earlier this year.
But the Bank for International Settlements (BIS) has spoken: The Basel-based organization’s triennial survey of the currency scene, the most comprehensive source on the size and structure of the market, shows that the dollar was on one side of 89.2% of all trades, up a touch from the 2022 result. The euro’s portion was down slightly at 28.9%, and the yen was little changed in third place, according to the BIS report.
Not bad, especially considering the poll was conducted in April, the same month that US President Donald Trump sought to upend the global trading system with steep levies on American imports. The big gyrations—the dollar fell sharply and yields on bonds climbed markedly—and the shock of the Liberation Day theatre led some investors to assert this was the beginning of the end for the dollar’s long reign. Time will tell, but there’s nothing in these numbers to suggest that any form of de-throning is imminent.
The anti-dollar camp, which over the years has gotten worked up over large deficits, the birth of the euro and the US subprime collapse as arguments for getting out of the greenback, seems to have cried wolf again.
The BIS numbers argue against another idea that just won’t die: that leaders can not only hold investors at bay, but engineer sweeping re-alignments of exchange rates. Trading is now worth $9.6 trillion a day, an increase of 28% in three years. The sheer scale of the market means that policies to substantially weaken—subvert, even—major currencies in the manner of the US-led Plaza Accord four decades ago face an uphill battle.
While the chaos unleashed by Trump meant the survey month was particularly volatile, the same could be said for the 2022 report, which was compiled in the aftermath of Russia’s invasion of Ukraine. But the trend is inarguable: The 1995 survey showed a market worth a comparatively small $1.5 trillion a day.
This shouldn’t be reflected as approval of Trump. Nor does it mean the dollar is immune to challenges. It can be central to commerce and still have the extent of that centrality chipped away. Likewise, the planet’s premier store of value, US Treasury bonds, can serve as safe assets and also be a bit less secure than before 2 April.
Shortcomings of would-be rivals count for a lot. Former Treasury Secretary Larry Summers quipped to an audience at Dartmouth College last year that Europe is a museum, Japan is a nursing home, China a jail and Bitcoin an experiment. Harsh words, but the message was fair.
If one of these places got its act together, US assets would have a run for their money. That doesn’t have to be a terrible thing, either. The breadth and depth of the US Treasuries market have meant that Washington can borrow on a scale that would cripple any other country.
While the dollar is ubiquitous, there was at least one other winner from the BIS report. The Chinese yuan accounted for 8.5% of transactions, up from 7% in 2022. That’s still small relative to the big kids, but it is now within striking distance of the British pound, whose share fell to 10.2%.
One of Beijing’s long-term goals is promoting the global appeal of the Chinese yuan, and these results suggest officials are making some headway. (Despite sterling’s travails, London remained the place to be; 38% of overall turnover occurred in the UK capital.)
It’s important not to get carried away with these yuan gains. The figures may be inflated by domestic investors pouring money into Hong Kong stocks, reasons Julian Evans-Pritchard at Capital Economics. And the yuan’s share of global payment transactions recorded at the Society for Worldwide Interbank Financial Telecommunication (Swift) was a mere 2.9% in August. “The big picture is that foreign appetite to use the renminbi or hold renminbi-dominated assets remains limited,” Evans-Pritchard wrote in a note last Thursday.
Beijing has recently stepped up its pitch for a new financial order where a few currencies compete on fairly equal terms—a transparently anti-greenback ploy. This ambition is only plausible in the very long run. The yuan deserves a pat on the back, but the prize is very distant. Sell America? Sorry, come back later. ©Bloomberg
The author is a Bloomberg Opinion columnist covering Asian economies.
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