The greenback’s dominance in the developing world may be under threat as more emerging economies begin to reduce their reliance on the global trade currency.
“Decreasing reliance on the dollar is an important trend that’s going to grow,” said Jim Rickards, chief global strategist at West Shore Funds. “As far as emerging markets, the rise of bilateral trading deals is significant for the dollar’s future as a trade currency.”
Around 80 percent of global trade finance is conducted in dollars, according to January data from SWIFT. But over the past few months, Russia and China have spearheaded a movement to use their domestic currencies for bilateral trade in an effort to distance themselves from dollar-denominated settlements. The countries recently signed a $24 billion three-year currency swaps agreement to double trading.
Meanwhile, Moscow and New Delhi may agree on a currency deal next year, Russian news agency TASS reported two weeks ago. Russia and Egypt are also considering a deal, according to Egyptian media reports last month.
It’s not just trade; Russia and China are also taking the lead in a $100 billion currency reserve pool and New Development Bank for the BRICS (Brazil, Russia, India, China, South Africa) group.
Moscow announced a $2 billion commitment to the bank over the next seven years in February, while China’s $41 billion contribution to the currency pool is the largest. The two projects, announced last year, were widely seen by economists as an alternative to Western dominance in international financial institutions.
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