Despite the rise of Bitcoin and persistent talks of de-dollarization, the US dollar remains the preferred currency for international transactions, with its share in SWIFT payments reaching a decade-high in 2023. Credit Agricole’s G10 FX strategy team notes that while local US banks faced bankruptcies and federal debt hit a record $34 trillion last year, the demand for US government bonds remains steady, indicating the dollar’s enduring international appeal.
The G10 FX strategists suggest the dollar’s increasing importance in international payments and transactions is a key reason why global investors continue to purchase the currency, potentially slowing any shift towards de-dollarization. They predict the dollar will remain a preferred currency or safe haven during stressful times, which could lead to capital outflows from assets like Bitcoin and stocks.
IMF data cited in the investor note shows that the dollar’s share of global central bank reserves remained at 59% in 2023, consistent with the past three years, while the euro’s share dropped to its second-lowest level since 2017. Despite China, Hong Kong, and Japan reducing their US Treasury holdings in 2023, other non-Asian countries compensated for this decline, keeping the global total stable.
Credit Agricole maintains that expectations of the dollar’s aggressive unraveling and loss of dominance are premature. The demand for US Treasuries from the rest of the world has been robust, despite the downward trend in holdings by China and Hong Kong, with countries like Ireland and Belgium indicating healthy US Treasury assets.
The narrative of de-dollarization is partly supported by China’s continued reduction in US Treasury holdings, with a total decrease of $97.5 billion over ten months in the year, marking the seventh consecutive monthly drop. The decline in such holdings by countries like China is linked to the decrease in their foreign exchange reserves, which have historically been parked in US Treasuries to support American consumption.