De-dollarization is a “myth” and the dollar will continue to rule

• Fears of dedollarization simply do not correspond to reality.
• Virtually no one is phasing out the trade dollar or foreign reserves.

The dedollarization rumor is a “bad joke” and virtually no one is dumping the greenback, according to currency expert Jeffrey Christian.

Christian, a currency and commodities trader and founder of CPM Group, commented on the growing fear that the US dollar could soon be displaced as the dominant currency in global financial markets.

Countries such as Russia, China and other BRICS countries have expressed interest in shifting trade away from dollar denomination. Still, the idea that anyone is abandoning the greenback at any significant level is not grounded in reality, Christian said.

“It’s a myth and it’s pointless and it’s very persistent. He is frighteningly stubborn. No one is throwing dollars away,” Christian said of de-dollarization in a recent presentation.

Traders and strategists have warned of a concerted effort to de-dollarize the global economy, citing the declining use of the dollar in global trade and as a central bank reserve currency.

But the decline is not as sharp as some make it out to be, Christian said, pointing to international trade data. The dollar accounts for 88% of all daily currency transactions, according to the Bank of International Settlements.

Central banks also did not reduce their holdings of the greenback, Christian noted. The dollar also accounted for 54% of all foreign exchange reserves in the fourth quarter of 2023, down slightly from the 54.8% recorded in the fourth quarter of 2021, International Monetary Fund data showed.

Dollar assets are still significantly ahead of those in other foreign currencies. Its closest competitor, the euro, accounts for just 19% of all central bank reserves, down from about 29% a few decades ago.

There is a diversification of the central bank’s foreign currency holdings, but it is not at the expense of the dollar and it is not far from the dollar itself,” Christian said.

Meanwhile, the dollar has appreciated over the past decade, which in itself is a sign that the currency is in high demand. The U.S. dollar index, which weights the greenback against a basket of foreign currencies, is up nearly 40% from its 2011 low.

“It’s clear that people are buying dollars in much greater volume than they are selling dollars,” Christian said. “De-dollarization is a myth, a joke, nonsense, whatever you want to call it, but you can’t call it fact and you can’t call it reality,” he added later.

Other economists have also dismissed the idea that the US dollar is being phased out. It takes decades for a currency to displace once it’s viewed as a safe haven, other economists said.

While the greenback faces challenges, there is no doubt about its dominant position, Federal Reserve Governor Chris Wallace said at a conference call on Monday.

“The U.S. role in the global economy is changing, and finance is always changing,” Wallace said. “The dollar remains the most widely used currency by a number of measures.”