Is “dedollarization” being overstated?

Many analysts and commentators believe that “de-dollarization” is just a matter of time, and many point to the growing influence of the BRICS bloc. But what does the data show? And is “de-dollarization” being overstated?

Here are some expert opinions and observations from BeInCrypto.

Also Read: Assessing and predicting the influence of the BRICS bloc on Bitcoin

What does the data say about the US dollar's position?

A recent report from Visualcapitalist on the structure of global foreign exchange reserves until 2023 shows that up to 59.8% of foreign exchange reserves of all countries are USD. This shows that the position of the USD is still very large and is difficult to shake in the short term.

Structure of global foreign exchange reserves. Source: visualcapitalist

There have been many efforts by countries to reduce their dependence on the dollar. For example, the UAE and India are negotiating to use the rupee in non-oil trade. Or, oil-rich Saudi Arabia is also opening up trade in currencies other than the dollar after nearly 50 years.

And in particular, BRICS may soon build its own payment system using blockchain technology to reduce dependence on the USD. This is still in the plan, but more and more countries want to join BRICS. According to Kitco , by September 2024, there are currently 34 countries expressing interest in joining this intergovernmental organization.

Value of BRICS currencies against USD. Source: aier.org

However, according to economist Robert F. Mulligan , historical data shows that the currencies of the major BRICS countries have all depreciated significantly against the US dollar since 1996. What is worth noting is that, during this whole process, the US dollar itself has also depreciated.

Value of BRICS currencies and USD in terms of gold. Source: aier.org

According to the economist, if you compare the performance of each currency with gold since the end of the 2014 recession, all have significantly underperformed the US dollar. From this, Robert F. Mulligan concludes that the BRICS creating their own reserve currencies and abandoning the US dollar is nothing more than “noise”.

The Real “De-Dollarization” Process Is Happening Through Gold

According to the author of “Black Swan” – Nassim Taleb – the noise about a common currency (possibly digital currency) of the BRICS bloc and trade transactions promoting the use of foreign currencies other than the USD, are just the surface of “Dedollarization”. He believes that the process of “real Dedollarization” is taking place through the accumulation of gold.

“People are not seeing the real ‘De-dollarization’ happening. It has nothing to do with trade deals. Transactions are denominated in USD, as a key currency, but central banks (especially BRICS) are increasing the value of their reserves in Gold.”

Nassim Taleb

Taleb's point is further emphasized by Luke Gromen – Founder of Forest for the Trees (FFTT) – with the following chart:

Central banks buy gold (green) and buy United States Treasury (orange). Source: angeloinchina

“This has been going on quietly for the past 10 years and will become much more pronounced after the sanctions on Russia’s foreign exchange reserves in 2022,” says Luke Gromem. The chart shows that instead of buying US debt (orange), countries have been buying gold (blue). Analyst Angelo Giuliano commented on the chart: “The US dollar Ponzi scheme is collapsing… the US’s privilege to print endless paper money is over.”

According to the above experts, the nature of the “De-dollarization” process should be viewed from the perspective of gold accumulation. Currently, the gold price has set a new high of nearly 2,600 USD in September and shows no signs of stopping.

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