De-Dollarization Is Not Over, Warns Chief Economist at CICC

The recent rise in the US dollar’s share of global foreign exchange does not imply that de-dollarization is seeing a trend reversal, said Miao Yanliang, the Chief Economist at China International Capital Corp (CICC). He wrote in a piece in the Financial Times that long-term diversification is real, and the US dollar will not be spared in the global currency markets.

De-Dollarization Is a Long-Term Trend, US Dollar To Lose Big, Cautions Economist

The economist stressed that de-dollarization will continue due to the faltering US Treasuries. For decades, they have sustained the US dollar’s dominance, but the rising National debt is making central banks reconsider their decision. Diversification, he said, will only keep increasing in the coming years, chipping away at the US dollar’s dominance.

“One reason de-dollarization may persist lies in US Treasuries. For decades, they have underpinned the dollar’s international role by providing deep liquidity and a widely accepted store of value. As US public debt has risen and the international use of financial measures such as sanctions has expanded, some institutions have begun to re-examine their use of Treasuries,” he said.

“For reserve managers, the prudent conclusion is that the shape of the international reserve system and the dollar’s role within it is still evolving. But recent developments do not yet amount to a definitive end to diversification,” he said. He cautioned that central banks are still considering de-dollarization, as the US dollar is hurting their reserves. From gold to local currencies and other commodities, they are actively pursuing diversification.

De-dollarization has been a hot topic this decade, with several countries looking to end reliance on the currency. The strengthening of local currencies is now a top priority for both poor and emerging economies. The US imposing sanctions, pressing tariffs, and the rising debt have made them cautious of the US dollar. The upcoming decades could see a major shift in the global world order.