The global shift away from the US dollar has accelerated significantly since February 2022, according to Stephen Jen, the CEO of Eurizon SLJ Capital Limited. Jen, a former economist at the International Monetary Fund and Morgan Stanley, made this statement in an interview with Die Welt on Thursday. He believes that most analysts are failing to recognize this trend because they only evaluate the nominal value of central banks’ dollar holdings, based on data released by the IMF.
However, Jen argues that if we consider the changes in the value of the dollar, it becomes clear that the dollar’s share in foreign reserves has decreased by about 11% since 2016. He points to Washington’s decision to freeze Russia’s dollar reserves after the launch of Moscow’s military operation in Ukraine as the decisive event that triggered this decline.
According to Jen, this decision has caused fear and anxiety not only in Beijing but also in other emerging countries. Holding reserves in US dollars had always been considered safe until this drastic move. Consequently, the BRICS countries, which include Russia, Brazil, India, China, and South Africa, have increasingly focused on alternatives to the greenback.
Jen explains that the economic power of the BRICS nations has multiplied since the emergence of the group. Currently accounting for 32% of global economic output, compared to the 30% covered by the G7 countries, the BRICS nations are becoming more influential in the global economy. In January 2024, six new members, including Iran, Saudi Arabia, the United Arab Emirates, Argentina, Egypt, and Ethiopia, will officially join the group.
This shift away from the US dollar has significant implications for the global economy. As more countries reduce their reliance on the greenback, it may weaken the dollar’s position as the world’s dominant reserve currency. This could have repercussions for the stability and influence of the United States in international financial markets.
The decline of the US dollar is not only a concern for Washington but also for other major economies around the world. Emerging countries, in particular, are seeking to diversify their reserves and reduce their exposure to the dollar. This trend reflects a broader geopolitical shift in the balance of power, with emerging economies gaining increased influence and seeking to assert themselves on the global stage.
In conclusion, the global shift away from the US dollar has accelerated dramatically since February 2022. The decline in the dollar’s share in foreign reserves is not adequately captured by analyzing nominal values alone. This trend, triggered by Washington’s decision to freeze Russia’s dollar reserves, has caused anxiety in Beijing and other emerging countries, leading them to seek alternatives to the greenback. The BRICS nations, along with the upcoming new members, are becoming more influential in the global economy. This shift has significant implications for the stability of the dollar as a reserve currency and reflects a broader geopolitical rebalancing of power.