A larger number of central banks are moving away from the US dollar than ever before, reigniting de-dollarization worries. A recent report by the Official Monetary and Financial Institutions Forum (OMFIF) found in a survey of 90 banks, sovereign wealth funds and pension funds, managing $10 trillion worth of assets, a net shift away from the US dollar. The central banks seem more keen on moving into the euro, yuan, British pound, Norwegian krone, and New Zealand dollar.
De-Dollarization: Why Are Central Banks Moving Away From The US Dollar?
According to the report, 82% of central banks already hold gold, and 30% of them intend to increase their gold exposure. The move is attributed to portfolio diversification in times of increased geopolitical tensions. Additionally, the banks also cite US policy uncertainty, potential sanctions, and weaponization of the dollar as other factors behind their decision.
There are also concerns about the rising US debt, which is nearing the $40 trillion mark. The sheer size of US deficits and borrowing may question the dollar’s long-term stability as a reserve asset.
Even BlackRock, the world’s largest asset manager, reiterated a similar sentiment. In a letter to shareholders, BlackRock CEO Larry Fink said that the US dollar may not remain the dominant currency in the world. Fink especially mentioned the US debt as one contributing factor. Fink said that digital currencies like Bitcoin (BTC) could become the next global reserve currency.
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The de-dollarization movement is nothing new. More and more countries are beginning to distrust the US dollar and the American hegemony. Sanctions and the weaponization of the dollar have made nations skeptical about investing in the greenback. China, Iran, Russia, South Korea, etc., have already developed a system outside the US dollar, using yuan and cryptocurrencies. It would now appear that global central banks, too, are slowing transitioning away from the dollar.