Strategists at asset management firm Eurizon SLJ have warned that the erosion of the US dollar’s global reserve currency status has accelerated at an alarming rate in recent years, especially after the start of the Russia-Ukraine war. They noted that the USD has declined 8% in a year, which is “equivalent to 10 times the average annual rate of erosion in USD market share in previous years.”
US dollar strategists lose their status as global reserve currency
Eurizon SLJ Asset Management says the US dollar has seen a significant drop as the reserve currency of choice in 2022 despite its continued dominance in international trade. The firm’s strategists Joana Freire and Stephen Jen wrote in a note on Monday:
We believe that the erosion of the dollar’s reserve currency status has accelerated at an alarming rate in recent years, especially since the start of the Ukrainian war.
“The dollar suffered a surprising collapse in 2022 in its market share as a reserve currency, presumably due to its heavy use of sanctions” following the outbreak of the Russia-Ukraine war, the strategists wrote. “The exceptional actions taken by the US and its allies against Russia have surprised the big countries that have reservations.” They further noted that Russia largely cut itself off from the global financial system after it invaded Ukraine last year, leading the Kremlin to become more reliant on the Chinese yuan.
The strategists added that the dollar’s share of global reserves has declined from about two-thirds in 2003 to 55% in 2021 and 47% in the following year, emphasizing:
This 8% drop in one year is exceptional, equivalent to 10 times the average annual rate of erosion of the USD market share in previous years.
However, Eurizon SLJ strategists believe that the USD “will likely continue to enjoy its dominance as an international currency for a while longer.” Citing data from the Triennial Survey of Central Banks conducted worldwide by the Bank for International Settlements (BIS), published in October last year, they noted that the dollar’s share of currency turnover increased from 85% in 2010 to 88%. % in 2022.
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