The G7, consisting of Canada, France, Germany, Italy, the United Kingdom, and the United States, is aiming to dethrone the US dollar as the global reserve currency. They are working on launching their own currency system to rival the US dollar. On the other hand, the emerging BRICS alliance, comprising Brazil, Russia, India, China, and South Africa, is also working on launching its own currency system to challenge the dominance of the US dollar. Financial analyst Don Popescu believes that the triumvirate of Russia, China, and India will lead the BRICS vs. G7 cold war and gradually undermine the dominance of the US dollar. Russia has been conducting the majority of its deals in Chinese Yuan or the Ruble to evade US dollar usage. India is also conducting trade proceedings with other nations in local currencies rather than using the US dollar [2207d078].
The US dollar's dominance as the world's primary reserve currency remains secure, according to a new report by the Atlantic Council's GeoEconomics Center. The study shows that neither the euro nor the BRICS countries have been able to reduce global reliance on the dollar. Dollar dominance has been strengthened recently given the robust US economy, tighter monetary policy, and heightened geopolitical risks. Western sanctions on Russia have accelerated efforts by the BRICS countries to develop a currency union, but they have been unable to make progress on de-dollarization. China's Cross-Border Interbank Payment System (CIPS) has added 62 direct participants in the past year, bringing the total to 142 direct participants and 1,394 indirect participants. Negotiations for an intra-BRICS payment system are in the early stages. The euro is also weakening as an alternative currency, with investors turning to gold instead. Russian sanctions have exposed the euro to similar geopolitical risks as the dollar. Concerns about macroeconomic stability, fiscal consolidation, and the lack of a European capital markets union have also hurt the euro's international role [eca3eec3].
While the USD's dominance remains intact, there are signs of a gradual shift away from the dollar in global transactions. Central banks are diversifying their reserves, with some increasing their holdings of gold and others turning to nontraditional reserve currencies such as the Australian dollar, Canadian dollar, Chinese renminbi, South Korean won, Singaporean dollar, and the Nordic currencies. This suggests a slow process where nontraditional reserve currencies gain a rising role if the USD were to lose its dominance [2483c63d].
Despite concerns about the erosion of the USD's dominance, experts argue that the focus should be on addressing the US's own economic fundamentals. They suggest that strengthening the US economy, addressing income inequality, investing in infrastructure, and improving education are crucial steps to maintain the USD's position in the global economy [3d5f6a78].
A growing group of observers and commentators has been forecasting the end of the US dollar as the world’s reserve currency. The argument is built on two fundamental premises: 1) An apparent waning influence of the US economy on a world stage in terms of favourable political and economic pacts as well as a decrease in the number of goods and services traded on a global scale using the US dollar as its medium. 2) An increase in the ambit of Chinese economic and political influence among its neighbouring States and other developing countries predominantly through the Belt and Road initiative. However, a closer examination shows that the waning influence of the US on the world stage is largely misguided. The US dollar continues to enjoy greater preference for investment than any other country. China's attempts to augment its influence through economic and political deals have been riddled with poor economic management and exploitative pacts. It is difficult to envision a world where China poses a better investment prospect and trade partner than the US. Many critical roadblocks lie ahead for countries seeking to displace the US dollar as the world’s reserve currency [ca5910f7].
The US dollar dominates trade, payments, and reserves, with 96% of trade in the Americas, 74% in the Asia-Pacific region, and 79% in the rest of the world denominated in the currency. The dollar's difficulties are largely self-inflicted, with incontinent fiscal and monetary policy diminishing its long-term purchasing power. American policymakers have sought to weaponize the dollar to further political objectives, including excluding foreign entities from international payment systems and imposing secondary sanctions. The US and its allies have frozen $300 billion of Russian central bank dollar holdings, and the US has passed the REPO Act authorizing the confiscation of Russian assets held by US banks. These factors are driving foreign institutions' increasing reluctance to transact in dollars or hold dollar assets. However, the US assumes the continuation of the dollar hegemony due to limited alternatives. The decline of the dollar would affect the US's ability to fund its budget and trade deficits, and its capital markets and financial institutions would decline. American political prestige and power would also suffer [b028de99].