The US dollar dominated cross-border transactions in August, accounting for almost half of international payments conducted via the SWIFT financial messaging system, according to RIA Novosti. Data analysis reveals that the share of the greenback in global transactions rose by 1.57% compared to July, reaching its highest level since data collection began.
In contrast, the euro experienced a significant decline, dropping to an all-time low of 23.2% last month from 36.44% in August 2022. Experts attribute this slide to the euro’s decreasing popularity outside the bloc of 20 countries that utilize the currency.
Conversely, the Chinese yuan witnessed impressive gains as its share in international payments increased to 3.47% in August from 3.06% in July. This rise reflects China’s ongoing trend of reducing dependence on the dollar and its efforts to promote its national currency on the global stage.
Although the yuan’s growth in cross-border transactions suggests a shift away from the US dollar, former International Monetary Fund (IMF) and Morgan Stanley economist Stephen Jen revealed that the dollar’s share in foreign reserves has actually declined by approximately 11% since 2016. Jen argues that many analysts evaluate the nominal value of central banks’ dollar holdings based on IMF data, failing to consider the currency’s depreciation.
The increasing prominence of the yuan in international transactions aligns with Beijing’s broader strategy to assert its currency’s role in the global economy. China has been actively pursuing initiatives to promote the yuan’s use and internationalization, such as encouraging its inclusion in global benchmarks and establishing bilateral currency swap agreements.
The upward trajectory of the yuan and the declining popularity of the euro raise questions about the future dominance of the US dollar in the international financial system. While the dollar’s current position remains strong, the evolving landscape suggests a potential shift in the global currency landscape in the years to come.
It is worth noting that a shift away from the US dollar could have significant implications for global trade, investment, and financial markets. The dollar’s status as the world’s primary reserve currency grants the US unique economic advantages, including the ability to borrow at lower costs and exert influence over global financial flows.
As the yuan gains further traction in cross-border transactions, it is clear that China is seeking to enhance its economic influence and reduce its reliance on the US dollar. This trend aligns with China’s broader ambitions to establish itself as a global economic powerhouse and challenge the United States’ dominant position in international finance.
In conclusion, the US dollar’s share in international payments through the SWIFT system reached its highest level on record in August, while the euro experienced a significant drop. At the same time, the yuan showed notable gains, reflecting China’s ongoing efforts to promote its national currency. The evolving currency landscape raises questions about the future of the US dollar’s dominance and the potential implications for global trade and investment.