Will China want to hold oversized allocation of USD Will African Countries want to hold oversized allocation of USD Will Iraq want to hold oversized allocation of USD Will India want to hold oversized allocation of USD Will Saudi Arabia want to hold oversized allocation of USD Will ASEAN countries want to hold oversized allocation of USD It will be a slow process but over the next few decades as more and more countries like Australia and New Zealand, Korea aand China, Japan and China already do, many will negotiate bi-lateral FX swaps to settle trade in each others currency. Make sense for Saudi to buy Chineses goods in Renminbi and China to pay for oil in Riyal and save billions a years in FX fees Just like many African countries already trade with EU with local currency, so not inconceivable for many African nations to add Renminbi It wont be tommorrow but over time USD will be used less and less, with ever increasing Euro and Renminbi used in direct trade.
Interestingly USA may have shot themselves in the foot by seizing Russia’s FX reserves. Many countries sitting on the fence in this geopolitical shit fight will be rushing to clear as much of their USD assets as fast as possible.
Their keeping Afghanstan's as well. I wonder who's next? https://www.usip.org/publications/2...gn-exchange-reserves-what-happened-whats-next
So true, freezing Russian reserve will have repercussions to USD way beyond short sighted Biden administrations. Now that USD is weaponised and an instrument of sanctions, only the most fool hardy will not consider options for alternatives. Alternatives is just that an alternative that is ready and waiting. It is not black or white, nor is it one or the other but if an option exist why not implement it. For example if you were Xi, Muḥammad bin Salmān Āl Su'ūd or any non aligned country how safe is their hard earned USD and can they sleep at nights knowing they are beholden to USD they hold and realisation their hold on power depends on access to alternatives.
Many countries have been de-dolarizing for years, Saudi’s are trading oil in Yuan to China since 2012. Like many geopolitical shifts, they are gradual and then all of a sudden. Russia just been the largest and most recent to act. I assume this will continue to be gradual for a while and likely result in multiple global currencies in the near term.
The majority of FX exchanges in USD are financial instruments denominated in USD. For central banks, institutions and funds there are very few alternatives unless you know something they don't. Furthermore, the US government has very little control over Eurodollars so countries can keep swapping USD free from any interference by Treasury.
Tap me on the shoulder as a reminder of when it really starts to matter what countries use to trade: https://fred.stlouisfed.org/series/FDHBFIN https://www.thebalance.com/world-currency-3305931
