De-Dollarization: ECB President Says US Reserve Currency Status Shouldn’t Be Taken For Granted

Joshua Ramos
Source: PYMNTS

Amidst the growing de-dollarization movement, European Central Bank (ECB) president Christine Lagarde has stated that the US dollar’s reserve currency status “should no longer be taken for granted.” Subsequently, it acknowledges recent attempts from various countries to replace the status of the US currency internationally. 

Primarily set in motion by the BRICS nations, de-dollarization has become a debated topic over the past few months. Moreover, as sanctions separated Russia from the West, alternative currencies were explored. Setting in motion the lessening relevance of the US dollar.

us dollar decline

ECB President Talks De-Dollarization

Speaking in an interview with the Council on Foreign Relations, ECB President Lagarde expressed her belief that the US dollar’s status as a reserve currency shouldn’t be taken for granted. Moreover, commenting on the developing trend across the globe. 

Lagarde recognized the US dollar as “the international, the global reserve, and the transaction currency.” She spoke on turning tides in the global market. Specifically, she states that “new trade patterns may have ramifications for payments and international currency reserves.”

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Source: Barron’s

She continued, “In recent decades, China has already increased over 130-fold its bilateral trade in goods with emerging markets and developing economies, with the country also becoming the world’s top exporter… New trade patterns may also lead to new alliances.” 

“Recent research indicates that there is a significant correlation between a country’s trade with China and its holdings in renminbi as reserves,” she stated. Thus, noting that China’s international relevance could eventually threaten the dollar Moreover, as BRICS continues to gain prevalence, the threat only grows. 

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Additionally, Lagarde stated that the shifting reliance on China creates clear de-dollarization trends. “All this could create opportunities for certain countries seeking to reduce their dependency on our Western payment system and currency frameworks.”

De-dollarization is a reality in the global economy. Moreover, the BRICS nations surpassing the G7 countries in GDP (PPP) has propelled that idea. Subsequently, sanctions and a national debt crisis could spell doom for the dollar’s waning relevance. Nevertheless, how the US responds will be vital.