The U.S. dollar remains the world’s dominant currency, but its status could be eroded by China and ongoing efforts to craft central bank digital currencies (CBDCs), says TD Economics.
In a new report, TD said that, unlike the shift from the British pound to the U.S. dollar as the world’s primary currency, the dollar isn’t likely to be replaced by a rival. Instead, its role will be gradually diminished by a handful of alternatives, including the euro, the yuan, and future digital currencies.
Interest in moving away from the U.S. dollar has increased in the wake of the U.S. government’s decision to freeze the foreign currency reserves of Russia’s central bank, the report noted.
“China has been at the forefront of such efforts, pushing to trade crude oil in yuan and to conduct its trade with Brazil, India, and Russia in yuan or local currency,” the report said. “The challenge to the ‘petrodollar’ is significant, both economically and symbolically.”
Additionally, there are a variety of other efforts to carry out global trade and financing activities in currencies other than dollars, it also noted.
At the same time, official digital currencies could eventually pose a challenge to the dominance of the dollar, the report suggested.
“Widespread adoption of other digital currencies could erode the dollar’s position by removing the need to use it as a vehicle for settling payments,” it said.”While the dollar remains the dominant and most-used currency, the long-term trend is away from it.”