US Treasury Secretary Janet Yellen made an unusual attendance in the middle of a commonplace Parliamentary hearing on July 9: De-dollarization is then her greatest concern.
It’s a sharp turn-around for a US market king who has long said the dollar is in danger of losing its position as the world’s dominant reserve currency due to sanctions or other plan errors, despite the obviousness of it. In March 2022, for example,  , Yellen , said” I do n’t think the dollar has any serious competition and it’s not likely to for a long time”.
The original Federal Reserve chairman remarked that” when you think about what makes the money a reserve money, it’s that we have the deepest and most liquid investment businesses of any country on earth. Treasury assets are safe, secure and exceedingly liquid. We have a strong economic and financial structure, as well as the rule of law. There is n’t really a reserve currency that can compete with it.
What a change two decades have made. Doubts of a “weaponized” dollars have the Global South joining forces with increasing necessity to find an alternative.  ,
And two factors in Washington are accelerating this energetic in real time. One is the rising US national debt, which is$ 35 trillion in the air. The other is a US election cycle that is getting more and more off the rails, like what international owners have never seen.
Now, Donald Trump is telegraphing 60 % taxes on all Chinese products, at least. The former US president has threatened to impose a 1 % taxes on all US-bound vehicles. That results in Joe Biden’s troubled White House competing with Trump to win the China trade battle.
Add to the uncertainty about whether Biden will even be the Democrat Party candidate. Questions abound about the senator ‘s , mental health , following his disastrous June 27 argument over Trump.
Asia is instantly confronted with the” Project 2025″ sport program devised by his caregivers as the chances of a Trump 2.0 White House rise, despite worries that Trump does get another chance at some contentious things on his 2017-2021 want list.
There is talk of ending the Federal Reserve and switching to a gold-backed money as part of the 900-page Project 2025 program created by the Heritage Foundation. Trump in the past has hinted at defaulting on US loan, devaluing the money and shaking down supporters that number America forces – such as Japan and South Korea– for , protection , income.
Also if he loses the November 5 election, Trump will almost certainly claim scams. Now, Trump and his best friends refuse to undertake to accepting a loss, almost ensuring another Capitol Hill , insurrection , equivalent to January 6, 2021.
It’s important to keep in mind that the social discord that caused that riot led to Fitch Ratings ‘ decision to revoke Washington’s AAA status in August 2023. Since then, Moody’s Investors Service, the guard of Washington’s sole remaining AAA, has pointed to conflicts over funding the government and raising the legal debt sky as threats to view.
The consequences from a possible Moody’s drop worries Asia significantly. This area has the largest stocks of US Treasury securities everywhere, accounting for roughly US$ 3 trillion. Japan has the most at US$ 1.2 trillion,  , China , is second with$ 770 billion.
However, Yellen’s career might be remembered as the one when the dollar’s velocity actually changed. It was evident by 2022 and 2023, argues analyst Stephen Jen, CEO at Eurizon SLJ Capital, that the economy’s loss of business share was accelerating. It was last year when the dollar’s tally of total global official reserves fell to 58 % from 73 % in 2001 – back when it was, in Jen’s words, an “indisputable hegemonic reserve”.
” The buck suffered a spectacular collapse in 2022 in its market share as a supply money, probably due to its muscular usage of restrictions”, Jen argues. ” Outstanding actions taken by the US and its supporters against Russia have startled big reserve-holding countries” – most of the Global South, emerging markets.
Though King Dollar also reigns, Jen argues, its ongoing supremacy “is not preordained” amid work among the BRICS – Brazil, Russia, India, China, South Africa – and abroad, including Southeast Asia, to de-throne the , US money.
” The prevalent see of’ nothing-to-see-here’ on the US dollars as a reserve money seems to trivial and complacent”, Jen argues. The World South is unable to completely avoid using the money, but a large portion of it has now become disinclined to do so, according to what needs to be appreciated by investors.
So why would the Washington establishment been lending its support to those who are most interested in devaluing the dollar?
During the time that Chinese leader Xi Jinping has been in power, localization has been top of the list. There is great news that China’s economy will become more and more influential globally.
Yet Beijing’s hesitancy to allow complete devaluation limits the dollar’s power. So do questions about the yuan’s trajectory, suggesting Xi ‘s , de-dollarization , drive is working better overseas – in terms of trade and official support – than at home.
One solution is for Xi and Premier Li Qiang to accelerate changes in the sectors of imports, regional state funding, capital markets growth, and innovation-focused growth engines. Beijing also needs to completely convert the yuan to raise trust.
According to Alexandra Prokopenko, a senior fellow at the Carnegie Russia Eurasia Center, “it’s believed that the yuan ca n’t become a full-fledged reserve currency because of the current restrictions on capital transactions in China.” Although Russia and other significant economies are using the Yuan to “help the Taiwanese authorities make it into an international reserve currency,” according to Prokopenko, structural limitations prevent it from being a “reliable replacement” for the dollar at this time.
Also, Xi’s “yuanization” strategy is gaining traction. In March, the yuan hit a , record high of 47 % of global payments by value.
Team Xi has consistently made significant and regular progress toward replacing the dollars as the economic system’s statement since 2016. That time, Beijing secured a spot in the International Monetary Fund’s” special , drawing-rights” system. It put the yuan into the world’s most unique currency team along with the money, euro, yen and the lb.
According to SWIFT, the yuan held the position of the world’s currency with the fourth-largest share of international payments in 2023.  , It also overtook the dollar as China’s most used cross-border monetary unit, a first.
Trump’s engineering of a weaker dollar would significantly improve the strategy. That would greatly reduce trust in US Treasury securities, a cornerstone holding for central banks around the globe, boosting America’s borrowing costs.
The scheme would imperil Washington’s ability to defy financial gravity. Thanks to reserve-currency status, the US enjoys any number of , special , benefits. This “exorbitant privilege”, as 1960s French Finance Minister Valéry Giscard d’Estaing famously called it, allows Washington to live far beyond its means.
All this explains why the dollar continues to rise even as Washington’s national debt approaches US$ 35 trillion.  , The , dollar is up 13 %  , so far this year versus the yen and 11 % versus the euro.
Biden’s White House also imperiled trust in the dollar. Along with continued debt accumulation, Team Biden’s decision to freeze portions of Russia’s currency reserves over its Ukraine invasion crossed a line with many global investors.
Dmitry Dolgin, economist at ING Bank, thinks yuanization remains largely on the agenda. Beijing has n’t let up on broadening currency swap arrangements, promoting yuan transactions and expanding China’s Cross-Border Interbank Payment System ( CIPS) aiming to replace SWIFT.
According to Dolgin,” It appears that China’s expanding trade ties and financial infrastructure indicate that the potential for further yuanization has not been exhausted.”
Neither have efforts to create a BRICS currency. BRICS has even greater firepower, considering it’s allying with Iran, Egypt, Ethiopia, the United Arab Emirates and others. At last week ‘s , Shanghai Cooperation Organization , summit, China, Russia and their geopolitical comrades did their best to” to show the world that the West’s attempts to contain them are not working”, notes Tom Miller, analyst at Gavekal Research.
In June, the yuan’s share of , Russia’s foreign exchange market hit 99.6 %. The Moscow Exchange had to stop selling dollars and the euro as a direct result of sanctions.  , In May, prior to the implementation of new US sanctions, the yuan’s share was just 53.6 %.
Not everyone is persuaded that the dollar will never run out. Analysts at the Atlantic Council’s GeoEconomics Center think the dollar’s dominance is actually growing. Its brawn is driven by a buoyant US economy, attractive yields and geopolitical uncertainty.
One problem, they write in a recent report, is that China’s currency is n’t ready for prime time.  ,
According to Atlantic Council analysts,” this is possibly due to reserve managers ‘ concern about China’s economy, Beijing’s position on the Russia-Ukraine war, and a potential Chinese invasion of Taiwan, which contribute to the perception of the renminbi as a geopolitically risky reserve currency.”
But the preponderance of available evidence suggests that, as 2024 unfolds, Yellen’s fears about de-dollarization are n’t just valid – they’re being realized by the day.