KUALA LUMPUR: Maybank Investment Bank Bhd (Maybank IB) foresees that the US dollar (USD) will remain the dominant currency of the world, despite some discernible dilution in the status.
In a note today, it pointed out that the USD’s share of the world’s external reserves has actually declined from the peak of 72.7 per cent in the second quarter of 2001 to 58.4 per cent as of end-2022.
Meanwhile, total foreign holdings of marketable United States (US) Treasuries have fallen to around one-third of the total outstanding in the current decade versus the high of 56.5 per cent in 2008, and the value of foreign central banks’ holdings of US Treasury holdings have “stagnated” in the last decade at around US$4 trillion.
It added that recent news and developments revealed a build-up in the momentum of countries — led by China and ASEAN — in exploring options and taking actions in ways to reduce dependence/reliance on the USD, especially in trade settlements, and to mitigate geopolitical risk.
“We do not expect USD to “wither and die”, but see gradual, longer-term re-balancing of the currency mix in global external reserves,” Maybank IB said.
It said there will be a gradual, longer-term re-balancing of key currencies’ current share in the world’s external reserves, noting that the present ratios of key currencies in the International Monetary Fund’s (IMF) Special Drawing Rights for the US dollar, the euro and Chinese Yuan shares are 43.4 per cent, 29.3 per cent and 12.3 per cent, respectively.
Maybank IB said recent news and developments suggest “political will, discourse and action” as well as the emergence of the “coalition of the willing” among the large emerging economies – spearheaded by China and Russia and supported by Brazil and India, as well as among ASEAN countries – to explore means and ways to reduce dependence or reliance on the US dollar.
“This includes the prospect of the Petro-Yuan initiative as an alternative to Petro-Dollar in energy commodity trade.
“Such dynamics gain prominence and gather momentum in the wake of geo-economic and geo-political events, namely US-China “trade-and-technology wars” and the Russia-Ukraine conflict, which also saw the weaponisation of USD dominance via economic and financial sanctions,” the research firm said. – BERNAMA
