The global head of country risk at Fitch Solutions has cited the growing adoption of cryptocurrencies, the de-dollarization efforts of the BRICS countries and the growing “economic power” of China as key factors eroding the US dollar’s dominance over time. He warned that China “will exercise more influence in global financial institutions and trade.”
Analyst explains why US dollar dominance is at risk
Fitch Solutions’ global head of country risk, Cedric Chehab, explained why the US dollar’s dominance is waning in an interview with CNBC on Sunday. Fitch Solutions provides financial information services; is a division of the Fitch Group which includes Fitch Ratings, a world leader in credit ratings and research.
The analyst explained that “any reduction in the state of the US dollar will be a slow erosion rather than a paradigm shift,” adding:
We will see how the dollar’s dominance erodes over time.
Chehab named three key reasons why USD dominance is eroding. The first concerns China. He detailed: “China is the largest trading partner of most economies, and as its economic power continues to increase, that means it will exert more influence in global financial institutions, trade, etc.”
Second, he explained that several economies want to diversify. Russia, for example, has been trying to disassociate itself from the US-led financial sector, she described, noting that sanctions imposed by Western countries have accelerated efforts. Chehab also mentioned that the BRICS bloc and ASEAN countries are making similar efforts to reduce their dependence on the US dollar. BRICS is made up of Brazil, Russia, India, China and South Africa. They are reportedly working to create a new type of currency that will reduce their reliance on the US dollar. The ASEAN nations comprise Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
The Fitch Solutions analyst also pointed to central bank digital currencies (CBDCs) and cryptocurrencies as the third reason. Noting that “they are talked about less,” he warned:
Essentially we will see perhaps less use of general currencies. That will affect the US dollar.
Do you agree with the Fitch Solutions analyst? Let us know in the comments section.
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