Fitch Solutions’ Global Head of Country Risk cites the growing popularity of cryptocurrencies, the BRICS countries’ efforts to de-dollarize, and China’s growing “economic power” as key factors that will erode the US dollar’s dominance over time. He cites the growing popularity of cryptocurrencies, de-dollarization efforts by BRICS countries, and China’s growing “economic power” as key factors eroding the dominance of the U.S. dollar over time. He warns that China will “exert greater influence in global financial institutions and trade.”
The analyst explains! Why the U.S. Dollar’s Dominance is at Risk
Cedric Chehab, global head of country risk at Fitch Solutions, explained why the dominance of the U.S. dollar is in decline in an interview with CNBC on Sunday. Fitch Solutions provides financial information services and is a division of the Fitch Group, which includes Fitch Ratings, a global leader in credit ratings and research.
The analyst explained that “the decline in the US dollar’s position will be a slow erosion, not a paradigm shift,” adding:
The dollar’s dominance will erode over time.
Chehab cited three main reasons why the US dollar is losing its dominance. The first relates to China. He elaborated: “China is the largest trading partner of most economies, and its continued rise in economic power means that it exercises greater influence in global financial institutions, trade, and so on.”
Second, he explained that several economies want to diversify. Russia, for example, is trying to separate itself from the U.S.-led financial sector, he explained, noting that sanctions by Western countries are accelerating that effort. Chehab also noted that the BRICS bloc and ASEAN countries are making similar efforts to reduce their dependence on the U.S. dollar. the BRICS bloc consists of Brazil, Russia, India, China, and South Africa. The ASEAN countries consist of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
Analysts at Fitch Solutions also pointed to central bank digital currencies (CBDCs) and cryptocurrencies as a third reason. Noting that they “have not been talked about much,” he cautioned:
We essentially see a reduction in the use of currencies in general, perhaps. That will have an impact on the U.S. dollar.
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