By Kathie Jones
Charles Schwab Managing Director, Chief Fixed Income Strategist

“There has been speculation lately that the U.S. dollar is on the verge of a major decline and might even lose its status as the world’s major reserve currency. “De-dollarization,” or the movement away from using the U.S. dollar as the primary currency of exchange in global trade and investment, has become a hot topic in financial publications. It appears to stem from news that China is beginning to use the yuan in commodity trades with a handful of trading partners, and Brazil and Argentina are exploring the potential for a common currency. Extrapolating these trends, the argument is that demand for dollars will fall, sending its value steeply lower.

Our view is that this argument is overblown. A long-term trend toward diversification of currencies in global financial transactions and trade may develop, but it’s a big leap from dollar dominance to de-dollarization.

While the dollar has declined over the past six months, it remains close to a 10-year high versus currencies of countries with which the U.S. trades. It also remains the primary currency used for trade and financial transactions in the global economy. The size of the recent non-dollar transactions that have raised alarm are very small. Trade in yuan accounted for less than 2% of global trade in 2022.

There are few signs that major foreign holders are poised to suddenly shift away from U.S. dollars and there are few other currencies that could take its place as a reserve currency. In our view, a gradual move to a global economy with a less-dominant dollar is possible over time, but we don’t see the dollar losing its reserve currency status…

Overall, a further easing in the dollar’s strength over the course of 2023 could be an opportunity for investors to diversify globally, but we don’t see it portending a major structural change in the world currency order.”

Link to full article: Will the US Dollar Be Dethroned?