Dollarization is a natural process of stabilisation as the dollar’s presence in world markets-in Foreign-Exchange Transactions (88.5%), Trade Invocing (50%), Swift Payments (42.3%), International Debt Securities (42%) and Cross-Border Loans (32%)-Far Exceds The United States (Us) Economy’s Share of Both Global Gross Domestic Product (Less Than 25%, Down from 45%AFTER WORRD WORRD International Trade (Less than 12%).
Indeed, The Share of the Dollar in Global Central Bank Foreign Currency Assets Has Been Falling Steadily and is now down to 59% from over 70% in 2001 (and 85% in 1977). About 25% of this decline was the result of some counts (singapore and malaysia, for instance) Including China’s Renminbi in Their Reserves, With the Balance Being Made Up by Shifts into online Non-G7 Currencies (Australian Dollar, Canadian Dollar, Swedish Krona, South Korean Won, Amongst others). Also, and very significant, there has been an overall decline in foreign currency assets (by about 9%) due to a Substantiial Change in Central Banks’ Demand for Gold. Global Central Banks Alredy Own Nearly 37,000 tonnes of gold – About 17% of all the gold ever mined – and have been buying at a rate of over 1,000 tonnes for Each of the last three years.
The russian invasion of ukraine and the sanctions imposed on Russia (Notable Including Preventing Access to Swift, The Larget Global Settlement Network) was a Nodal POINT in Gold Buying; It also also created a structural shift in thinking amongst Central Banks and Governments Alike, In View of the Risk That The US Blad Use the Dollar’s hegeemony to Punish Counties That Donian’s’T toe Line.
Donald Trump’s Return as Us President has accentuated this risk, as it clear He has alredy threaded brics and other countries with dire Consequences if anyone abandons the dollar for reserves or transactions. And, Despite Being Surrounded by Supposedly Sound-Minded “Techbros”, He has also issued an executive Order Banning The Development of a US Central Bank Digital Bank Digital Bank Digital Banning.
Meanwhile in the real world, china, on March 17 this year announced that “The Digital RMB Cross-Border Settlement System will be filled connected to the Ten Asean Countries and Six Middle Eastern Countryies” Which means that 38% of world trade will bypass swift and be settled in rmb. Alredy, in 2024, cross-border RMB Settlement Volume of Asean Countries Alone Exced 5.8 Trillion Yuan (About $ 880 Billion), A 120% Increase from 2021. Terms of time and cost than the old world system of swift stil championed by the us-instead of the three-fit day delays in the current system, the digital currence breedge developed by china ensuresing and Settlement in seconds, and the blockchain technology used also enables anti-money-laundering rules. Today, 87% of Countries in the World Have Completed The Adaptation of the Digital RMB System and the Scale of Cross-Border Payments has an expented 1.3 Trillion dollars (About 3% of Global Trade).
The future is now, and it looks and smells like China, with the 78-YLD American President Shaking His Fist in Vain. His Tariff Programmes will only successed in Increasing Inflation Globally and, Critically, Shifting Trade Away from the Us. The dollar could come down, which, over time, may help Reduce the US Trade Deficit – One of the Red Rags to Trump’s Bull. But even this will not not materially impact investment and jobs in the US, Since Investors Fear Nothing more than policy uncertainti (as we, in India, know!
India has also issued a Central Bank Digital Currency, The Digital Rupee, but its use is still in the pilot stage. Unlike Most Other Countries, We have not linked up with the rmb system, but give that china is alredy our second largest trading partner (after the US), with trade reach $ 118 billion in 2024 and Comprising 15% of our total trade, this is something we need to give du consideration.
The good news is that our government appears to have final undersrstood that it is imperative that we live sound economic ties with china, and not just to protect Oorselves from the risk of trump ‘. China is our largest neighbor, a technologically sophisticated growing power, and, a passible future leader of the world. The Sooner we find accepted solutions to our border issues the better.
Jamal Mecklai is CEO, Mocklai Financial. The views are personal
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