The Future of the US Dollar as a Reserve Currency | Page 29

Features Cover story take its place . For instance , a multi-polar monetary system would make the trading of goods such as commodities more complex , with the price of a single commodity shifting in different ways as the values of potentially competing trading currencies also fluctuate at different rates .
Recoding the world ’ s economy-reserve status quo would also be a tightrope walk . Using China as a case study , its economy still heavily relies on US dollar revenues from the manufactured goods it exports .
These US dollars are then converted into renminbi to pay workers , with the People ’ s Bank of China ( PBC ) buying US dollars to keep supply scarce and the renminbi deflated to remain attractive for companies looking to outsource labour .
However , China is already dedollarising its trade – both by relying more on its own consumers and western companies ‘ reshoring ’ manufacturing outside of China – and the PBC is dedollarising its reserves with $ 173bn US Treasury disposals , by sale or not replacing at maturity , in 2022 alone .
On the latter , DWS ’ s Song argued the advent of the petrodollar in 1974 was pivotal as central banks ramped up buying of US Treasuries and T-bills to house their US dollar reserves . Structural dedollarisation across emerging markets could threaten a key use case for US debt securities .
Too soon to call time of death
Thought experiments aside , Marcus Weyerer , senior ETF investment strategist at Franklin Templeton , said ETF investors should have “ little concern ” and there is “ zero chance ” the US dollar ’ s role as a reserve currency is challenged for the foreseeable .
While the renminbi ’ s share of global trade flows has doubled in the past year , much of this was driven by exports to Russia , whose share of global GDP stands at 3 % and falling .
Despite the US decision to politicise the dollar last year , Weyerer said it “ would take decades ” for China to convince investors it represents a more trustworthy alternative , as well as removing its capital account restrictions .
The US dollar will continue to act as a safe haven due to “ deep liquidity in US Treasuries ” and a “ tested and effective legal system ” in the US , he argued .
Song concluded : “ The weight of US dollars in reserves will continue to decrease but that will not happen from today to tomorrow . The gold market and the euro are too small to be a diversifier for trillions of dollars and China is unlikely to abolish their capital controls in the next five years .”
Jamie Gordon is senior features reporter at ETF Stream