Hideo Nakamura A high-ranking economist from TD Bank, a leading financial services institution, opines that the U.S. dollar’s supremacy could be undermined by the Chinese yuan, the euro, and digital currencies. “There has been a noticeable discontent among many nations over the dollar’s monopoly and these countries are exploring alternatives for transacting international trade and cross-border banking,” he elaborated.
Shifting Away from U.S. Dollar Is a Long-Term Trend, According to Economist
Vikram Rai, a senior economist at TD Bank, recently published a report focusing on the global trend of de-dollarization and the currencies that have the potential to impede the U.S. dollar’s dominance. He pinpointed the Chinese yuan, the euro, and central bank digital currencies (CBDCs) as major potential competitors.
Even though Rai acknowledged the U.S. dollar as “the prevalent and most-utilized currency,” he accentuated that “the future trend is gradually moving away from it.” He noted:
Many nations have expressed their annoyance with the dollar’s monopoly and are exploring alternate means for executing international trade and cross-border banking.
Rai underscored that the U.S. government’s action of freezing the Russian central bank’s foreign currency reserves in February 2022 “has encouraged certain countries to strive harder to lessen their reliance on dollars.”
He highlighted that China is leading the de-dollarization campaign by pushing for the trading of crude oil in Chinese yuan and promoting commerce with Brazil, India, and Russia in the renminbi (RMB) or local currencies. Rai observed that “The threat to the ‘petrodollar’ is substantial, both economically and symbolically,” emphasizing that since the 1970s, nearly 80% of global oil sales have been conducted in U.S. dollars, which has fuelled significant demand for the USD.
He also alluded to “other gradual efforts to undermine the dollar’s status,” citing the proposed common BRICS currency expected to be debated at the economic bloc’s next leaders’ summit. Despite this, he expressed skepticism, saying: “A comprehensive currency union among such diverse economies seems improbable, but the announcement signifies a resolve to conduct more of their trade and finance independent of dollars.”
Yuan, Euro, and Digital Currencies
Rai also identified the Chinese yuan and the euro as the primary challengers to the U.S. dollar, despite the fact that the U.S. dollar is still more prevalent and easily convertible. The economist asserted:
The principal contenders to the dollar today are the euro and the RMB.
The Chinese yuan, however, has certain obstacles in its journey to potentially supplant the U.S. dollar as the global reserve currency. Rai added that the yuan “is not freely convertible, nor is it available in abundance outside of China today, which makes it a difficult choice.”
Rai also suggested that digital currencies could pose a significant threat to the U.S. dollar’s dominance, explaining:
Digital currencies, including central bank digital currencies, present another challenge to the system of dollar dominance. The adoption of other digital currencies on a large scale could undermine the dollar’s position by eliminating the necessity of using it as a medium for settling payments.
However, he mentioned that most central banks are still in the experimental phase of creating central bank digital currencies. After these initial stages, “We anticipate several years of work are required to establish the legal and governance framework for central bank digital currencies,” the economist suggested.
Furthermore, Rai stated:
Digital platforms, including cryptocurrencies and central bank digital currencies, could potentially offer an alternative one day.
He concluded: “In the coming one or two decades, there is a significant potential for the emergence of regionally-dominant
