The U.S. dollar remains the world’s primary reserve currency, and neither the euro nor the so-called BRICS countries have been able to reduce global reliance on the dollar, a new study by the Atlantic Council’s GeoEconomics Center shows.
The Atlantic Council’s GeoEconomics Center recently published its “Dollar Dominance Monitor,” revealing that the U.S. dollar continues to dominate global foreign reserve holdings, trade invoicing, and currency transactions. Despite efforts by BRICS countries to shift away from the dollar, the dollar’s role as the primary global reserve currency remains secure in both the near and medium term.
The study highlights that the robust U.S. economy, tighter monetary policy, and heightened geopolitical risks have recently bolstered dollar dominance, despite economic fragmentation and BRICS’ push to use other international and reserve currencies. Western sanctions on Russia, following its invasion of Ukraine, have intensified BRICS’ efforts to form a currency union, but these efforts have yet to make significant progress.
BRICS, an intergovernmental organization comprising Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates, has struggled to advance its de-dollarization agenda. The report notes that China’s Cross-Border Interbank Payment System (CIPS) saw a 78% increase in direct participants over the past year, totaling 142 direct and 1,394 indirect participants. However, negotiations for an intra-BRICS payment system are still in the early stages, with bilateral and multilateral agreements within the group forming a potential basis for a currency exchange platform over time. These agreements, however, are not easily scalable due to their individualized nature.
China has been proactive in supporting renminbi liquidity through swap lines with its trade partners, yet the renminbi’s share in global foreign currency reserves has decreased to 2.3% from a peak of 2.8% in 2022. This decline is attributed to reserve managers’ concerns about China’s economic stability, Beijing’s stance on the Russia-Ukraine war, and fears of a potential Chinese invasion of Taiwan, all of which contribute to the perception of the renminbi as a geopolitically risky reserve currency.
The report also points out that the euro, once seen as a potential challenger to the dollar’s international role, is weakening as an alternative currency. Those looking to reduce risk exposure are increasingly turning to gold instead. Sanctions on Russia have demonstrated that the euro is subject to similar geopolitical risks as the dollar. Additionally, issues such as macroeconomic stability, fiscal consolidation, and the lack of a European capital markets union have further undermined the euro’s international role.
