Page 22 - bne monthly magazine June 2024 Russian Despair Index

22 I Companies & Markets bne June 2024
bne:FX
Dollar remains dominant in global trade, but global tensions are fragmenting the world, says IMF
Ben Aris in Berlin
The global economic landscape is undergoing a transformation not seen since the end of the Cold War. Soaring geopolitical tensions have seen the world fragment into large trading blocs based on economic and national security concerns and that has affected the use of the dollar as the currency for trade and foreign direct investment (FDI) flows around the world.
“After years of shocks – including the COVID-19 pandemic and Russia’s invasion of Ukraine – countries are re-evaluating their trading partners based on economic and national security concerns. Foreign direct investment flows are also being re-directed along geopolitical lines. Some countries are re-evaluating their heavy reliance on the dollar in their international transactions and reserve holdings,” First Deputy Managing Director of the IMF Gita Gopinath said
in a speech on May 7.
“All of this is not necessarily bad. Given the recent history of events, policymakers are increasingly – and justifiably – focused on building economic resilience. But if the trend
Geopolitical tensions have not lowered the level of trade, which remains higher than in the Cold War, but the routes have changed dramatically and the use of the dollar is falling slowly. / bne IntelliNews
continues, we could see a broad retreat from global rules of engagement and, with it, a significant reversal of the gains from economic integration,” Gopinath adds.
The US decision to weaponise the dollar as part of its sanctions regime on Russia has unsettled governments around the world and has pushed them to diversify away from their dependence on the currency.
While the dollar continues to dominate global trade as the foreign exchange of choice, countries with balanced trade relations are already moving to settle this trade in national currencies, led by Russia and China, which have already almost entirely abandoned the dollar in settlements of their mutual trade.
More noticeable is the reduction of the share of the dollar in sovereign gross international reserves; the dollar continues
to make up the largest share of the reserves of most countries, but its share has already fallen noticeably. China and Russia
in particular have been dumping the dollar and rapidly increasing the share of monetary gold in their reserves basket.
www.bne.eu
Sources: COFER, SWIFT and staffcalculations.