De-Dollarization

Is US Dollar Dominance Dented?

By Ramu Thiagarajan, Richard F Lacaille,

Aaron Hurd, Michael Metcalfe and Hanbin Im

June 2023
Is Dollar Dominance Dented?

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Is Dollar Dominance Dented?

Executive Summary

Concerns about de-dollarization — the loss of the US dollar’s role as the

world’s hegemonic currency — have re-emerged recently due to a series
of developments following the onset of Russia’s war against Ukraine.
These developments range from the growing weaponization of the US
dollar (USD or dollar), the continued decline in USD reserves, the growth
in bilateral trade relationships denominated in non-dollar currencies,
and the emergence of alternatives to the US-dominated international
payments system, the Society for Worldwide Interbank Financial
Telecommunications (SWIFT). We evaluate alternatives to replace the
USD and find that no other currencies possess the required attributes
of a dominant currency. The euro and the Chinese renminbi (RMB) are
the closest to satisfying the requirements of a dominant currency,
but not nearly close enough to threaten the dollar’s hegemonic status.
We show that the alternative of a multipolar arrangement without a
dominant currency would be costly and unlikely to survive as a stable
equilibrium. Thus, we conclude that the hegemonic role of the USD
is likely to remain intact into the foreseeable future. That said, we
recognize that the powerful geopolitical and economic forces at play
today will continue to pose ongoing challenges to the dominance of the
dollar and that this story is far from over. We should remain vigilant in
monitoring developments and be careful not to overlook future stresses
or to take the hegemonic status of the USD for granted.

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Is Dollar Dominance Dented?

Contents

Introduction 5

Section 1
Current Concerns About The Dominant Status of the Dollar 7

Section 2
Criteria for Currency Dominance and Its Role in Global Finance 9

Section 3
Is the Euro Likely to Become a Dominant Currency? 14

Section 4
Is the Renminbi Likely to Become a Dominant Currency? 16

Section 5
Balance of Payments and Dollar Hegemony 18

Section 6
Merits of Dollar Dominance Over a Multipolar Currency Regime 20

Conclusion 23

4
Is Dollar Dominance Dented?

Introduction

Starting with the Bretton Woods Agreement in 1944, the

dollar has been the dominant currency in international
trade and finance for nearly 75 years.

There are three principal ways by which this The dollar’s dominance has been the key engine
dominance manifests itself: for financial globalization. However, as outlined
by Carney (2019), this dominance has its costs,
the primary one being spillover of USD shocks
to other economies and markets. This raises the
concern that the global financial cycle and the
1 USD cycle are effectively synonymous, leading
Invoicing and to negative externalities.
international trade While the ills of spillover risks from the traditional
hegemonic role of the USD were widely discussed
after the Great Financial Crisis (GFC), the topic
largely went into hibernation until recently. The
topic of de-dollarization reemerged in recent
2 political discussions given that the hegemonic
status of the USD enabled the weaponization of
Financing and access
the currency as a means to impose sanctions
to capital markets
against Russia following its invasion of Ukraine.
The persistence of the war and the rising conflict
with China, however, have spurred attempts by
different economies to shift away from dollar
dependence. According to the research group
3 GlobalData, discussion on social media regarding
de-dollarization rose more than 600 percent in
Reserve accumulation
the first quarter of 2023 compared to the last
by central banks
quarter of 2022.1

5
Is Dollar Dominance Dented?

Concrete attempts to move away from the These developments contrast with the results
dollar appear to have gained momentum of the Triennial Central Bank Survey conducted
recently. For example, this past April, Argentina by BIS, which show that even while the dollar has
officially began paying for Chinese imports in recently lost some market share, the greenback
yuan rather than dollars.2 That same month, remains the dominant currency for foreign
India and Malaysia entered into agreements exchange and over-the-counter derivatives
to settle trades in Indian rupee in addition to markets.9 Thus, the dollar’s dominance seems
other currencies.3 In March, Brazil reached a intact. As Larry Summers quipped, “Where are
similar agreement with China to settle trades they going to move?”10
in their own currencies rather than the dollar.4 Is the dominance of the dollar threatened?
In May, Brazil and Argentina announced plans Or is the reemergence of discussions on de-
to continue working on the development of a dollarization merely a topic that resurface
financing mechanism allowing them to avoid periodically when geopolitical conflicts involving
using the dollar in their bilateral trades.5 Also the US and other large economies dominate the
in May, South Korea and Indonesia signed a airwaves? We explore these questions in this
memorandum of understanding to promote article. Our primary conclusion is that the dollar’s
bilateral trade in their local currencies.6 The dominance and the fundamental forces that have
BRICS group of nations — Brazil, Russia, India, enabled it are unlikely to abate anytime soon.
China, and South Africa — is discussing the We believe, however, that geopolitical forces in
potential introduction of a common currency countries with large current account surpluses
among them.7 And dollar credit to non-banks may embark on a process of de-dollarization that
in emerging market and developing economies could gain momentum and dent dollar dominance
showed a large contraction recently according with attendant effects on the US Treasury market.
to the Bank for International Settlements (BIS).8 These forces merit careful monitoring in the wake
of geopolitical challenges and recent initiatives
such as “friend-shoring” that could accelerate
de-dollarization efforts.

6
Section 1

Current Concerns About

the Dominant Status of the Dollar

7
Is Dollar Dominance Dented?

The concern for de-dollarization has re-emerged recently

due to a series of developments following the onset of
Russia’s war against Ukraine, such as bilateral trade
relationships denominated in the currencies other than
the dollar and competing payment systems to SWIFT.

First, several bilateral trade relationships that sanctions on many Russian banks.14 The fact
do not involve the dollar have formed recently. that a payment system alternative to SWIFT
Russia and China were already moving away exists in Russia and China, two countries that are
from using the dollar in bilateral trade since most active in de-dollarization efforts, amplifies
the onset of the US-China trade war in 2018.11 concerns around the dollar being displaced as the
In 2013, 80 percent of Russia’s total exports dominant currency. It also has been reported that
were denominated in the dollar; in 2020, Moscow is working with Beijing to connect the
however, only slightly more than half of its SPFS to China’s Cross-Border Interbank Payment
total exports were settled in the dollar. India System (CIPS) to work around the SWIFT ban.15
and Tanzania also have signed an agreement The confluence of these recent developments
to settle trades in their own currencies.12 As raises the concern that discussions on de-
noted earlier, trade between India and Malaysia dollarization this time around might actually
can now be settled in Indian rupee; and China prove different from previous episodes. We
and Brazil have reached a deal to trade in explore whether the dollar’s traditionally
local currencies after entering a preliminary hegemonic role has declined significantly
agreement this January. Additionally, it has in the next section.
been reported that Saudi and Chinese officials
are considering pricing some oil sales in yuan.13
The confluence of these recent
Russia’s central bank announced that Russia’s
developments raises the concern that
alternative to the SWIFT system – the System
discussions on de-dollarization this time
for Transfer of Financial Messages (SPFS) – has
around might actually prove different
grown significantly in 2022 following Western
from previous episodes.

8
Section 2

Criteria for Currency Dominance

and its Role in Global Finance

9
Is Dollar Dominance Dented?

Research has shown currencies become dominant in

international trade when the canons of convertibility,
liquidity, and depth of foreign exchange (FX) and bond
markets— and, importantly, stable monetary policies
and rule of laws—are met.16

The US Department of Treasury (2009) lists the following criteria for a currency to gain finance and
trade dominance:

The importance of Stable domestic

the economy in The convertibility macroeconomic
international trade of the currency policies
2 4 6

3 5

A sizable domestic The size/depth/ The use of the currency

economy openness of the as a currency peg
financial markets

As noted earlier, a dominant currency that In this section, we assess whether the dollar is
meets the above criteria exhibits its strength via: indeed at risk of losing its hegemonic role based
(1) invoicing and international trade; (2) financing on an analysis of these three attributes of
and access to capital markets; and (3) reserve currency dominance.
accumulation by central banks.

10
Is Dollar Dominance Dented?

Trade invoicing exports and imports to and from the US during

the period from 2008 to 2019 (approximately
The invoicing currency data used in Boz et al.
12 percent and 18 percent, respectively),
(2020) combined with global trade shares
demonstrating the dominant role the USD
data from UNCTAD shows in Exhibit 1 that
plays in global trade invoicing.17 Most notably,
the share of global exports and imports invoiced
according to Boz et al. (2020), the share of the
in the dollar is much larger (approximately
dollar in invoicing in general has varied little
48 percent for exports and 52 percent for
over history across different regions.18
imports, respectively) than the share of

Exhibit 1: Share of Trade Invoicing and Exports / Imports: 2008 - 2019

Invoicing
60%

50%
Invoicing Share (%)

40%

30%

20%

10%

0%
USD EUR Other

Exports Imports
Trading
60%

50%
Trading Share (%)

40%

30%

20%

10%

0%
United States Euro Area Rest of the World

Exports Imports

Source: Boz et al. (2020), "Patterns in Invoicing Currency in Global Trade," IMF Working Paper 20/126; UNCTAD

11
Is Dollar Dominance Dented?

Cross-border financing the increasing funding costs for the dollar due to
a historically rapid pace of US monetary policy
Cross-border financing also exhibits continuing
tightening. Funding costs, in addition to depth
strong dollar dominance, albeit a bit less
of markets, drive cross-border financing. In
encouraging than prior years. The latest BIS
fact, Japanese yen credit grew substantially in
data shows that dollar credit to non-banks in
the fourth quarter of 2022 due to the relatively
emerging market and developing economies
cheaper cost of funding. This trend is similar
(EMDE) shrank by 4 percent in the fourth quarter
in both BRICS and non-BRICS countries in the
of 2022, a rate last observed during the GFC.
EMDE group as well as in advanced countries.
Such a decrease, however, is largely driven by

Exhibit 2: Credit to non-banks in emerging market and developing economies by currency

5
$ (trillion)

0
2000-Q1
2000-Q4
2001-Q3
2002-Q2
2003-Q1
2003-Q4
2004-Q3
2005-Q2
2006-Q1
2006-Q4
2007-Q3
2008-Q2
2009-Q1
2009-Q4
2010-Q3
2011-Q2
2012-Q1
2012-Q4
2013-Q3
2014-Q2
2015-Q1
2015-Q4
2016-Q3
2017-Q2
2018-Q1
2018-Q4
2019-Q3
2020-Q2
2021-Q1
2021-Q4
2022-Q3

USD JPY EUR

Source: BIS, Refinitiv Datastream

12
 Is Dollar Dominance Dented?

Central bank reserve dollar, as well as the impact of exchange rate

movements over the same time period. Part of
Of the three ways in which currency dominance
the decline, as noted in Thiagarajan, Hurd, and
is demonstrated, the weakening role of USD
Hentov (2022), is due to the increasing liquidity
as a reserve currency appears to be garnering
in many currencies outside the Big Four (USD,
the most attention. As represented in Exhibit
British sterling pound, Japanese yen, and
3, Currency Composition of Official Foreign
euro) and a growing push by reserve currency
Exchange Reserves (COFER) data released by
managers towards active reserve management.
the International Monetary Fund (IMF) shows that
The recent rapid decline in USD reserves,
58 percent of global central bank reserves were
combined with mounting efforts towards de-
held in the USD in the fourth quarter of 2022
dollarization in other parts of the world (such as
compared to 72 percent in 2001. This reflects
BRICS common currency as mentioned above),
both active movements in allocations out of the
warrants continued monitoring.

Exhibit 3: Share of Global Reserves by Currency

100
90
80
Share of Global Reserves (%)

70
60
50
40
30
20
10
0
1999-Q1
1999-Q4
2000-Q3
2001-Q2
2002-Q1
2002-Q4
2004-Q2
2005-Q1
2005-Q4
2006-Q3
2007-Q2
2008-Q1
2009-Q3
2010-Q2
2011-Q1
2011-Q4
2012-Q3
2013-Q2
2014-Q1
2014-Q4
2015-Q3
2016-Q2
2017-Q1
2017-Q4
2018-Q3
2019-Q2
2020-Q1
2020-Q4
2021-Q3
2022-Q2

USD EUR JPY GBP RMB Other

Source: International Monetary Fund

Our evaluation of the three measures for currency and is likely to retain that role in the
currency dominance suggests that the USD near future.19 We next evaluate whether the euro
still maintains its dominant status as a global or the RMB could obtain hegemonic status.

13
Section 3

Is the Euro Likely to Become

a Dominant Currency?

14
Is Dollar Dominance Dented?

When it comes to debating potential alternatives to the dollar

as a dominant currency, the euro and the RMB are generally
considered the two leading contenders. Returning to the
criteria of dominant currencies, the euro, indeed, exhibits
many of the requisite characteristics.

The size of euro area economy is large; the However, the euro lacks the depth and liquidity
euro enjoys a large share of international trade of the US financial markets including a common
invoicing; the euro is easily convertible to sovereign bond market, which makes the euro
other currencies; and the euro area is a major unlikely to become as dominant as the dollar.
player in international trade and also has stable In addition, from a political diversification
domestic macroeconomic policies. Given the perspective, the European Union’s frequent
return of positive policy rates and the gradual political alignment with the US – as demonstrated
unwinding of European Central Bank (ECB) by the EU joining the US in implementing
government bond holdings, the euro is likely heavy sanctions against Russia – means that
to recapture a portion of the near 8 percent switching to the euro will not diversify political
decline in its share of global reserves between risks for countries aligned to Russia and China.
2009-2015.

15
Section 4

Is the Renminbi Likely to Become

a Dominant Currency?

16
Is Dollar Dominance Dented?

Compared to the euro, the RMB faces more significant

hurdles to overcome before it could potentially displace
the USD as a dominant currency.

While the Chinese economy is the second

largest in the world, and China is the top
international trading partner for many
countries, the renminbi’s share in trade
invoicing is relatively small.20 China lacks
openness of its capital market, its economy
is tightly controlled, and the renminbi is not
easily convertible into non-Chinese assets.
Thus, for the renminbi to potentially acquire
a hegemonic role, capital controls first need
to be relaxed or removed, and the renminbi
needs to be used more commonly in trade
invoicing outside mere bilateral trade
between China and other countries. As
noted in Eichengreen et al. (2022), without
full capital account liberalization, such
changes will naturally require the backing
from USD reserves. Thus, in the absence of
capital account liberalization, the People’s
Bank of China will continue to hold and use
USD reserves, thereby naturally limiting the
extent of renminbi internalization.

17
Section 5

Balance of Payments and

Dollar Hegemony

18
Is Dollar Dominance Dented?

The hegemonic status of a currency essentially implies the

robust use of the currency in trade invoicing as well as in
credit markets, both of which create claims in that currency.
These claims come from liabilities specified in the currency,
which effectively makes such a country a debtor economy
with a deficit status from the capital side.

Satisfying these liabilities, in turn, requires a cannot avoid trading with the US and its allies.21
liquid and robust fixed income market. Thus, In theory, they can trade with other countries with
in the absence of a highly liquid and deep fixed large current account surpluses such as Norway
income market, it is impossible for a different and Switzerland, but the extent of such bilateral
hegemonic currency to emerge. As noted above, trade would be limited and cannot address the
neither Europe nor China has a fixed income trade needs of global commerce. China and
market as robust as that of the US, making other countries that are running current account
them unlikely candidates for an alternative surpluses might start trading with each other or
dominant currency. with non-US trade deficit countries in order to
Currently, the growing calls and related move away from the dollar hegemony that has
actions for a move away from the dollar as essentially funded their surpluses.22 The joint
a dominant currency is primarily originating probability of this happening on a broad scale,
from countries like China and Russia, both of however, is pretty low. Even if this were to occur,
which have a large current account surplus. As the ability of such bilateral agreements to satisfy
noted by Brad Setser at the Council on Foreign the growing needs of global commerce would
Relations, the countries with the loudest voice be limited.
against the hegemonic role of the dollar simply

19
Section 6

Merits of Dollar Dominance Over

a Multipolar Currency Regime

20
Is Dollar Dominance Dented?

Up to this point, we have explored the extent of the US

dollar’s role as the dominant currency and the potential for
other currencies to displace the dollar. Another possibility
to consider is a multipolar world in which there are multiple,
weakly dominant currencies, instead of a single dominant
currency.

While current developments may appear currency. The widespread holdings of assets
to be moving the FX world in that direction, and liabilities and the invoicing of imports and
we strongly believe that transitioning to a exports in the single dominant currency offer a
multipolar world would be costly, particularly natural currency hedge, as the foreign exchange
during times of liquidity stress, and despite the rate impact gets netted out. Transacting and/
advantages of diversification away from USD or holding assets in multiple currencies would
for reserve managers. greatly increase the need and costs of managing
The so-called “exorbitant privilege”23 of the the risk resulting from currency mismatches
hegemonic currency draws significant attention. across assets/liabilities and costs/revenues,
For example, benefits accrue to the hegemon despite the diversification benefits derived from
in the form of reduced borrowing costs, greater holding multiple reserve assets. Not only would
political clout, and a lower probability of a the complexity and volume of transactions to
balance of payments crisis even in the presence manage currency risk increase in a multipolar
of persistent current account deficits. However, world, but the cost of each of those transactions
global users of the hegemonic currency also would likely increase in the absence of a single
enjoy benefits in the form of significant positive core, ultra-liquid currency.
network externalities, which include lower For countries with currencies pegged to the
financing costs, reduced exposure to currency USD, the move to a multipolar world would
volatility via natural hedges, and lower currency arguably have the most significant impact. Unless
transaction costs. Moving to a multipolar world alternative currencies have similar level of depth,
would be potentially costly as it would eliminate liquidity, and policy stability as the United States,
those benefits. such countries would experience a much greater
A highly liquid sovereign and credit market increase in borrowing costs due to the increased
tends to decrease borrowing costs and access to rise in currency volatility and loss of anchor of
credit for all who wish to borrow in the dominant the credibility of US monetary policy. Some of the

21
Is Dollar Dominance Dented?

more developed countries, such as those in the

Gulf Cooperation Council, would likely be able to
establish monetary policy credibility relatively
quickly, but the costs of additional currency
volatility, in the interim, would lead to a greater
increase in volatility of growth and inflation
compared to the increase experienced by non-
pegged currencies.
For these reasons, we believe that a world with a
single hegemonic currency with a deep and liquid
sovereign and credit market is far preferable to
the potential dislocation presented by a multipolar
regime. Further, as individuals, corporates, and
countries seek to reduce currency-related risks
and frictions and minimize transaction costs,
there would likely be a natural pull away from
a multipolar world back toward an equilibrium
characterized by a single core dominant currency.
That said, the macro challenges associated with a
single hegemonic currency cannot be discounted.
An important question to consider is whether
global macro risks are likely to be escalated in
a world of single hegemonic currency versus
a multipolar world. This question is difficult to
answer, but an interesting longitudinal study by
Vicquery (2022) demonstrates that global crises
occur less frequently during time periods of
unipolar hegemonic currency. This is the case
because the depth and liquidity of the currency
and sovereign market enables the USD to manage
global crises more effectively compared to a
world of multipolar currencies.

22
Conclusion

23
Is Dollar Dominance Dented?

The criteria and clearance threshold for other currencies

to replace the USD as a hegemonic currency remain high.
Moreover, the probability these criteria could be met is low.
In addition, a multipolar world appears inefficient. Thus, we
believe the hegemonic role of the dollar is likely to remain
intact into the foreseeable future. The hegemonic status of
the dollar, however, is not pre-ordained.

As the deterioration in share of reserves the situation, as the loss of the dollar’s hegemonic
and the increasing number of bilateral trade status might imply the loss of faith in the currency
relationships outside the dollar emerge, we and, importantly, the US Treasury market, a
should be careful not to take the hegemonic result which can carry significantly more serious
status of the dollar for granted. While its implications. The dollar’s “exorbitant privilege” is
complete replacement may not be likely, a not a mandate, but the outcome of economically
“weakened” state of the USD’s hegemony, sensible choices made by market participants
with both the euro and the renminbi playing an over decades and generations. While erosion
increased role, is feasible if the current trend of this extraordinary privilege would be slow,
continues. Therefore, policymakers should the geopolitical changes underway in the global
remain vigilant when exploiting the hegemonic macro world today may ultimately weaken the
status of the dollar. Likewise, asset managers USD’s long-standing privileged position.
and asset owners should continue to monitor

24
Is Dollar Dominance Dented?

Acknowledgements

The authors would like to thank Andrew Conn and Eric Garulay for
productive discussions and comments on earlier versions of the paper.

25
Is Dollar Dominance Dented?

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Endnotes
1. “De-dollarization discussions on Twitter, Reddit surge 11. Bhusari, Mrugank; Nikoladze, Maia. “Russia and China:
600% in Q1 2023, reveals GlobalData.” GlobalData. https:// Partners in Dedollarization.” Atlantic Council. [Link]
[Link]/media/business-fundamentals/ [Link]/blogs/econographics/russia-and-
de-dollarization-discussions-on-twitter-reddit-surge- china-partners-in-dedollarization/. 18 February 2022
600-in-q1-2023-reveals-globaldata/. 3 April 2023.
12. Okafor, Chinedu. “The dollar is no more relevant in
2. Sharp, Alexandra. “Argentina Turns to Yuan to Save trade between India and Tanzania.” Business Insider
Dwindling Dollars.” Foreign Policy. [Link] Africa. [Link]
com/2023/04/27/argentina-yuan-china-dollar-currency- markets/the-dollar-is-no-more-relevant-in-trade-
trade-imports-imf-diplomacy/. 27 April 2023. between-india-and-tanzania/dt2txej. 19 March 2023.

3. Chaudhary, Dipanjan Roy. “India, Malaysia can now 13. Said, Summer and Stephen Kalin. “Saudi Arabia
trade in Indian rupee.” The Economic Times. https:// Considers Accepting Yuan Instead of Dollars for Chinese
[Link]/news/economy/ Oil Sales.” The Wall Street Journal. [Link]
foreign-trade/india-malaysia-can-now-trade-in-indian- com/articles/saudi-arabia-considers-accepting-yuan-
rupee/articleshow/[Link]. 1 April 2023. instead-of-dollars-for-chinese-oil-sales-11647351541.

4. “China, Brazil Strike Deal To Ditch Dollar For 14. Marrow, Alexander. “Russia’s SWIFT alternative expanding
Trade.” Barron’s. [Link] quickly this year, central bank says.” Reuters. [Link]
news/china-brazil-strike-deal-to-ditch-dollar- [Link]/business/finance/russias-swift-alternative-
for-trade-8ed4e799. 29 March 2023. expanding-quickly-this-year-says-cbank-2022-09-23/.

5. Argentina and Brazil to discuss trade agreement to skip 15. Moscow, Beijing working on SWIFT workaround -Russian
dollar.” Beuno Aires Herald. [Link] lawmaker.” Reuters. [Link]
com/business/argentina-and-brazil-to-discuss- ukraine-crisis-russia-china-idUKL5N2VJ39Z.
trade-agreement-to-skip-dollar. 2 May 2023.
16. Gournichas, P. 2019. “The Dollar Hegemon?
6. South Korea, Indonesia central banks agree to Evidence and Implications for Policy Makers”.
promote local currency transactions.” Reuters.
[Link] 17. In contrast, the euro’s share of 40 percent and 37 percent
south-korea-indonesia-cbanks-agree-promote-local- in global export and import invoicing is not much larger
currency-transactions-2023-05-02/. 2 May 2023. than the share of exports and imports to and from the Euro
Area countries during the same period (38 percent and 35
7. Vecchiatto, Paul. “South Africa Urges Careful Debate on percent, respectively). Mercado, Jacildo and Das (2022)
Option of Introducing BRICS Common Currency.” Bloomberg. use the invoicing currency data of Boz et al. (2020) from
[Link] 2009 to 2015 for their analysis. The role of the dollar in
south-africa-urges-careful-debate-on-option-of- trade invoicing is particularly impressive in the Asia Pacific
introducing-brics-common-currency? 10 May 2023. region; indeed, 79 percent of exports and 73 percent of
imports are invoiced in USD. Boz et al. (2020) show that this
8. “Statistical release: BIS international banking statistics picture has not really changed post 2015. Lastly, as noted in
and global liquidity indicators at end-December 2022.” Boz et al. (2020), the invoicing data does not include some
BIS. [Link] of the major global trading countries like China and Mexico.

18. Please see Boz et al. (2020) for more details.

9. “Triennial Central Bank Survey of foreign exchange and
Over-the-counter (OTC) derivatives markets in 2022.”
BIS. [Link] 19. Vicquery (2022), using a high-frequency measure of
international monetary dominance based on foreign
exchange co-movements, shows extraordinary
10. Anstey, Chris. “Larry Summers Says the Dollar
stability and persistence of the dollar’s hegemony
Isn’t Losing Its Dominance in Global Economy.”
that is markedly different from other hegemonic
Bloomberg. [Link]
currencies over the previous 150 years.
articles/2023-04-21/summers-spurns-de-dollarization-
hype-flags-china-capital-flight?. 21 April 2023.

27
Is Dollar Dominance Dented?

20. DiPippo and Palazzi (2023), using both Boz et al. (2020) 22. Setser, Brad W. “The New Geopolitics of Global
data and more high-frequency SWIFT and trade settlement Finance.” Council on Foreign Relations. [Link]
data, show that while China is settling more trade in [Link]/blog/new-geopolitics-global-finance.
renminbi (accounting for roughly 23 percent of China’s
total goods and trades in 1Q 2023), China’s volume of 23. The term “exorbitant privilege” was coined by France’s
bilateral trade is not yet sufficiently large to even come then-finance minister and former French president
close to matchingthe dollar’s share of trade invoicing. In Valery Giscard D’Estaing in the 1960s. It describes the
addition, the SWIFT data shows that the renminbi accounted benefits that the U.S. enjoys due to the dollar being the
for 2.2 percent of global payments in February 2023. world’s prime reserve currency, such as being indebted
to foreign countries essentially free of charge as the
21. Setser, Brad W. “The New Geopolitics of Global U.S. can pay back in dollars that can be issued at will,
Finance.” Council on Foreign Relations. [Link] leading to its overextended standard of living. https://
[Link]/blog/new-geopolitics-global-finance. [Link]/news/newsletters/2020-06-13/u-s-
dollar-s-exorbitant-privilege-is-about-to-end-kbdl8zcy.

28
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