The United States should anticipate a gradual decline in the dollar’s share of global reserves, Treasury Secretary, Janet Yellen, has said.
Yellen, who was answering de-dollarization questions at a Housing Financial Services Committee, however, also noted that there are currently no alternatives available that could fully replace the dominance of the U.S dollar.
Regarding the potential impact of U.S sanctions on dollar transactions, Yellen acknowledged that the imposition of sanctions has prompted certain countries to seek out alternative currencies.
“But the dollar plays the role it does in the world financial system for very good reasons that no other country is able to replicate, including China,” she said.
“And that is, we have deep liquid open financial markets, strong rule of law, and an absence of capital controls that no country is able to replicate. It will not be easy for any country to devise a way to get around the dollar.”
Not even moves by traditionally allied countries, like France, which have begun engaging in non-dollar transactions, will turn out to be adequate.
Yellen still acknowledged the increasing diversification of reserve assets, which is a natural development in a growing global economy. She implied that as the global economy expands, it is expected that countries would diversify their holdings of reserve assets beyond the U.S dollar.
Lately, several countries have expressed intentions to withdraw their reliance on the U.S dollar as their economies came under pressure from the U.S economy. In one of the latest instances, Kenyan President, William Ruto, questioned the rationale for African countries to use the greenback to settle trade between one another.
“Why is it necessary for us to buy things from Djibouti and pay in dollars?…Let us pay in dollars what we are buying from the U.S. But what we are buying locally, let’s use local currency,” said the Kenyan President at a session in Djibouti.
Besides Kenya, the U.S dominance has been questioned by the BRICS bloc of nations led by Russia and China which are determined to establish an alternative reserve currency.
Composed of Brazil, Russia, India, China, and South Africa, the alliance is reportedly working on a new currency with details set to be unveiled at an upcoming summit to be held in South Africa in August 2023.
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