💸 The blocking of the reserves of the Bank of Russia by Western countries, coupled with large-scale financial sanctions against Russian banks and companies, have raised the question of whether the advantages of dollarization can be offset.

The non-economic risks of US dollar transactions and dollar-denominated assets have become apparent to everyone, especially to central banks.

The share of the American currency in international reserves has been steadily declining over the past decades, but this has been happening quite slowly. If in the early 2000s about 70% of the reserves of the world’s central banks were in US dollars, since 2020 it has been below 60%. There was no drastic reduction in US dollar reserves in 2022. Its share in reserves fell by 0.44 percentage points, while its share in interbank transfers even increased.

The main reason for such rigidity in the seemingly understandable increased political risks is the lack of serious alternatives that can absorb significant amounts of savings from central banks.

The de-dollarization of the global financial system will continue. This will be facilitated primarily by the development of technology in the financial sector. The development of automated trading platforms helps to reduce the cost of exchanging one currency for another. Central banks will seek to conduct direct clearing with each other, not directly using the currencies of developed countries.

In the future, the digital currencies of central banks can also be used for international transactions, reducing costs for economic agents. However, this is a rather slow process, writes Marsel Salikhov.

https://valdaiclub.com/a/highlights/de-dollarization-myth-or-reality/

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