Strategists at asset management firm Eurizon SLJ warn that in recent years, especially after the outbreak of war in Russia and Ukraine, the decline of the US dollar’s status as the world reserve currency has accelerated at an alarming pace. They say the U.S. dollar has lost 8 percent of its value in a year. They point out that the U.S. dollar has fallen 8% in one year, which is “ten times the average annual pace of erosion of the U.S. dollar’s market share over the past several years.”
Strategists on the U.S. dollar losing its status as the world’s reserve currency
Eurizon SLJ Asset Management says the U.S. dollar has experienced a significant decline as a preferred reserve currency in 2022, despite its continued dominance in international trade. The firm’s strategists Joanna Freire and Stephen Jenwrotein a Monday note:
We believe the dollar’s decline as a reserve currency has accelerated at an alarming rate in recent years, especially since the start of the war in Ukraine.
“Following the outbreak of the Russian-Ukrainian war, the dollar successfully collapsed its share as a reserve currency in 2022.” Probably due to the heavy-handed use of sanctions, the strategists write.” The exceptional actions taken by the United States and its allies against Russia have taken the large reserve currency holders by surprise.” They further note that after Russia invaded Ukraine last year, it became largely isolated from the global financial system, leading the Kremlin to increase its reliance on the Chinese yuan.
The strategists stressed that the greenback’s share of global foreign exchange reserves has declined from about two-thirds in 2003 to 55% in 2021 and 47% the following year:
The 8% decline in the past year is unusual and is ten times the average annual pace of decline in the U.S. dollar’s market share before that.
However, Eurizon SLJ strategists believe that “the U.S. dollar will retain its dominance as an international currency for some time.” They cite data from the Bank for International Settlements’ (BIS) triennial survey of central banks around the world, released last October, that shows the dollar’s share of currency turnover will rise from 85% in 2010 to 88% in 2022.
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