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
MAY 2023 | ETF INSIDER 29