Is the USD easy to lose its status as the global reserve currency?

About 60% of the world’s $12.8 trillion in foreign currency reserves are now in USDgiving America a privilege before other countries.

Thanks to the attractive USD-denominated US government bonds, yields are low. The US borrows from other countries in USD, so if this currency depreciates, US bonds will also depreciate. American companies can do international transactions with no conversion fees.

Most importantly, the US could cut off central banks’ access to the US dollar globally, isolating and hurting economies.

The US used this “weapon” against Russia in February, after it launched a special operation related to Ukraine, with the freezing of Russia’s $630 billion worth of foreign currency reserves and causing the currency to collapse. ruble dropped sharply.

However, to protect themselves, countries will diversify their investments into currencies other than USD. This is what makes the currency’s reserve currency position so problematic.

A new study by the International Monetary Fund shows that the dollar’s share of global foreign currency reserves has declined over the past two decades. The authors of the study say that this shows how foreign currency reserves will change in the near future.

Russia and China are also hoping to bring about changes.

Russian President Vladimir Putin on March 31 threatened to stop gas exports to countries that do not open an account at a Russian bank and pay in rubles. The European Union imports about 40% of its gas needs and 30% of its oil needs from Russia, and it is not easy to find alternative sources of supply.

Meanwhile, Saudi Arabia is negotiating with China about paying for oil in RMB instead of USD.

Although nothing is impossible, it is very unlikely that the US will lose its privilege.

For years, China has been working to improve the international standing of the renminbi, but only 3% of transactions globally are in the currency, compared with 40% of the dollar’s share.

While, US stock market remains the largest and most liquid in the world, while foreign capital is flowing into the country.

According to the United Nations Conference on Trade and Development, global foreign direct investment increased by 77% to an estimated $1,650 billion in 2021, but investment in the United States increased by 114% to $323 billion.

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