Why De-Dollarization has not taken off (yet)?

The Dominance of the Dollar as a Global Reserve Currency

The dollar continues to dominate as the world’s primary reserve currency, with efforts to weaken its global role having limited impact so far.
According to the latest study by the GeoEconomics Center of the Atlantic Council, titled “Dollar Dominance Monitor,” the US dollar remains the king of currency reserves, global trade invoicing, and transactions on a global scale.
Its position as the primary global reserve currency is strong in the short and medium term.

No Rivals for the Dollar as a Reserve Currency

The Atlantic Council report highlights that the dollar’s dominance over other global currencies is solid, bolstered by the strong American economy, the more restrictive monetary policy of the Fed, and increasing geopolitical risks.
Despite discussions among BRICS countries about introducing a new currency to replace the dollar, neither the euro nor the BRICS nations have succeeded in reducing global dependence on the greenback.

Recent data suggests that the long-awaited process of de-dollarization, amid global fragmentation and shifting power dynamics, has been slow to materialize.

Challenges to Euro and Other Currencies

The study indicates that economic fragmentation has prompted BRICS nations to explore alternative international markets and currencies, but with limited and short-lived effects.
While Western sanctions on Russia have pushed the BRICS group towards developing a monetary union, progress in de-dollarization has been minimal.

Similarly, the euro has struggled to establish itself as a viable alternative reserve currency.
Once seen as a contender to the dollar’s international role, the euro is now weakening in that regard.
Concerns about geopolitical risks, macroeconomic stability, fiscal consolidation, and the lack of a unified European capital market have all contributed to undermining the euro’s international standing.

The Role of the Chinese Renminbi

China has actively supported the liquidity of the renminbi through swap lines with its trading partners, but its share in global foreign exchange reserves has declined to 2.3% from a peak of 2.8% in 2022.
Factors such as concerns over the Chinese economy, Beijing’s stance on the Russia-Ukraine war, and the potential Taiwan conflict have led to the perception of the renminbi as a geopolitically risky reserve currency.

While the possibility of de-dollarization looms in the future, displacing the dollar seems unlikely.
Factors such as a declining West, increased conflicts, the rise of Asian powers and China could potentially lead to a shift in global currency dynamics.
However, tangible results in this direction appear distant for now.