International Monetary Fund Senior Deputy Managing Director Gita Gopinath recently reported that some countries are reconsidering their dependence on the US dollar. Gopinath explained that this was caused by the recent turmoil caused by the coronavirus pandemic, the geopolitical situation with Russia, and national security concerns.
International Monetary Fund Director-General: ``Countries are considering using the US dollar''
Some countries are changing their minds about holding and trading the US dollar, according to an IMF representative. IMF Senior Deputy Managing Director Gita Gopinath said some countries are preparing to reduce their dependence on the U.S. dollar, given a variety of factors affecting the U.S. economy and the dollar's status as a reserve currency..
Speaking at the Stanford Economic Policy Institute, Gopinath said:
Some countries overestimate their dependence on the dollar for international transactions and foreign reserves.
Gopinath further explained that the revaluation was due to various shocks experienced by the US currency, including the coronavirus pandemic and the Russia-Ukraine conflict. As a result, more countries are "reevaluating" their trading partners based on national economic and security concerns, he said.
However, Gopinath acknowledged that despite the diversification of foreign reserves into non-traditional options, the US dollar still accounts for almost 60% of the world's foreign reserve pool. Furthermore, the US currency still dominates the bulk of trade finance, with 80% of international trade taking place in excess of the US dollar, according to SWIFT data.
Gopinath acknowledged that in recent years, there has been no change in trade patterns among US allies, but there has been a noticeable change in trade patterns among China's allies. "For Greater China, the share of the US dollar in trade finance payments has been declining since the beginning of 2022. At the same time, the share of the renminbi has more than doubled, from about 4% to 8%."
Prominent investors and analysts are considering the possibility of the US dollar losing its status as the world currency. Legendary investor Warren Buffett, known as the "Oracle of Omaha," recently said he believes the dollar "is going to be around for a very long time because there aren't a lot of alternatives."