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Western sanctions on Russia have hastened the global shift away from the US currency, according to Stephen Jen, CEO of London-based asset management firm Eurizon, on Tuesday.
According to Jen, the dollar’s proportion of global reserves declined ten times quicker last year than it had in the previous two decades, as reported by Bloomberg. According to Jen, the process began when certain countries began to explore for alternatives after Russia’s assets were blocked abroad and the country was shut off from the global financial messaging system known as SWIFT.
When “wild” exchange rate movements are factored in, the dollar has lost around 11% of its market share since 2016, and more than double that amount since 2008, according to Jen and his Eurizon colleague Joana Freire in a note.
“The dollar suffered a stunning collapse in its market share as a reserve currency in 2022, presumably due to its muscular use of sanctions,” according to the note. According to Jen and Freire, “exceptional actions taken by the US and its allies against Russia have startled large reserve-holding countries,” the majority of which are emerging economies.
The dollar now accounts for around 58% of total global reserves, down from 73% in 2001, when it was the “indisputable hegemonic reserve,” according to experts.
China and India are working to utilize their own currencies to settle international trade, while Russia has begun to accept payments in rubles and Chinese yuan for its goods from a number of countries.
Earlier this week, Brazilian President Luiz Inacio Lula da Silva urged poor countries to abandon the US currency in favor of local currencies.
Following Lula’s remarks, US Treasury Secretary Janet Yellen conceded that the dollar’s status as the world reserve currency may be weakened as Washington uses its dominance over the global financial system to promote geopolitical aims through sanctions.