The Russian ruble has rebounded sharply off the lows seen after the invasion of Ukraine, although there remains a wide margin between prices quoted in Moscow and those quoted offshore.
But in the latest sign of hope for the beleaguered Russian currency, Bloomberg reported Monday that the level of trade denominated in yuan USDCNY, +0.17% and rubles USDRUB, -2.73% has risen 1,067% to roughly $4 billion since the start of the war in Ukraine. The surge in bilateral trade shouldn’t come as a surprise, since both Russian President Vladimir Putin and Chinese leader Xi Jinping pledged to do just that earlier this year.
And while global trade continues to be overwhelmingly carried out in dollars, auguring the end of the greenback’s global dominance has been a trendy long-term call in recent years, with such luminaries as Bridgewater Associates’ founder Ray Dalio counted among the long-term dollar skeptics.
More recently, Twitter co-founder Jack Dorsey – who has become a fixture in the financial press thanks to his support for Elon Musk’s planned takeover of the company – espoused the view that the dollar has lost its “global reserve currency status”.
While recent trends have shown the dollar’s share of global trade has retreated slightly in recent years and emerging-market central banks have reduced the level of dollar concentration in their foreign reserves, it remains extremely dominant by both metrics.
According to the International Monetary Fund, the dollar’s share of global reserves stands at roughly 59%, well above the euro’s share (20.5%) and the share of the Japanese yen, which comes in at No. 3 with roughly 5.8%. To be sure, the dollar’s share is down from north of 70% in the late 1990s.
Here are a couple more data points courtesy of the Federal Reserve, which took a long, hard look at the dollar’s role in the global financial system in a report published last fall.
About 60% of international and foreign currency liabilities – deposits, primarily – and loans are denominated in U.S. dollars, a level of dominance that has remained relatively stable since 2000 and is well above that for the euro.
The U.S. dollar is overwhelmingly the world’s most frequently used currency in global trade. Between 1999 and 2019, the dollar accounted for 96% of trade invoicing in the Americas, 74% in the Asia-Pacific region, and 79% in the rest of the world. The lone exception seems to be Europe, where the euro is the dominant currency for trade.
As Bloomberg points out, increased bilateral trade benefits both Moscow and Beijing. For China, having more Russian buyers using its currency will improve the yuan’s internationalization at a time when economic and political ties with Washington are growing increasingly strained. Meanwhile, Moscow needs to replace trade lost to Western sanctions and from western businesses voluntarily pulling out of the Russian market.
It’s also worth noting that the dollar is presently trading just shy of multi-decade highs, as the ICE Dollar Index DXY, +0.09%, a measure of the dollar’s strength against a basket of its top rivals, touched its strongest level since late 2002 earlier this year before easing slightly.
Currency strategists at investment banks and many other analysts who focus on macroeconomics and markets – including Ian Bremmer of the Eurasia Group, who rebutted Dorsey’s claim in a tweet – have argued that the most important factor supporting the dollar right now is that there is “no alternative”.
Of course, it’s also worth noting that there have been a couple of other challenges to the dollar’s hegemony of late – most notably Saudi Arabia’s plan to price some oil contracts in Chinese yuan.