In 2023, the US dollar's share of world foreign exchange reserves fell from 58.52% to less than 58.41%. The achieved figure was the minimum for the entire period of official statistics (since 1995), according to materials from the International Monetary Fund (IMF).
According to the organization, states have also become slightly less likely to hold money in the currencies of the eurozone, Great Britain and China. From January to December, the share of the euro in global stocks fell from 20.4 to 19.98%, the pound from 4.92 to 4.84%, and the yuan from 2.61 to 2.29%. At the same time, the total share of all other currencies increased from 13.56 to 14.49%.
“Many people have become more active in transferring money into the currencies of developing countries. This trend is associated with an increase in trade relations between these states and the desire of the world's central banks to diversify their foreign exchange reserves. Meanwhile, the attractiveness of the dollar continues to gradually fall, as regulators begin to consider it an increasingly less reliable asset,” Alexander Razuvaev, a member of the supervisory board of the Guild of Financial Analysts and Risk Managers, explained to RT.
It is noteworthy that back in 2000, the American currency accounted for more than 72% of world reserves, but already in 2002 the value dropped below 70%, and in 2020 - below 60%. Although the level of international confidence in the dollar remains relatively high, many investors are increasingly concerned about the situation around the budget and public debt of the United States. Freedom Finance Global leading analyst Natalya Milchakova told RT about this.
Let us note that for the past 22 years, the United States has been consistently spending more than it earns, and in 2023, the expenses of the American treasury exceeded the amount of income by almost $1.7 trillion (this is approximately 6.2% of the country’s GDP). This data is provided by the Federal Reserve Bank of St. Louis.
To cover the budget deficit, Washington has to borrow more and more money every year. Thus, since 2002, the US national debt has increased 5.5 times and today is close to a record $34.6 trillion. Moreover, at the end of 2023, the amount of debt was equivalent to almost 122% of GDP, that is, about a quarter greater than the size of the country’s economy.
Moreover, as the American national debt increases, the cost of servicing it skyrockets. For example, if in 2020 Washington spent about $345 billion on interest payments on its obligations, then in 2023 this amount was already $659 billion, and in 2024 it could reach $870 billion.
Thus, this year for the first time the United States will spend more money on servicing its debt than on defense ($822 billion). Moreover, this trend will not change in the next ten years, experts from the budget department of the country’s Congress predict.
“Recently, concerns about huge debt have been added to fears that the rating agencies, which have already begun to gradually reduce the US credit rating, may significantly lower it altogether. This, in turn, will lead to a collapse of the American bond market, which until now had a reputation as the most reliable government securities in the world,” noted Natalya Milchakova.
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In addition, global confidence in the dollar is undermined by the United States’ attempts to use its own currency as a “tool of foreign policy struggle.” Russian President Vladimir Putin previously stated this in an interview with American journalist Tucker Carlson.
According to the Russian leader, even against the backdrop of a record high level of public debt and the unlimited printing of new banknotes, the dollar remained “the main weapon for maintaining the power of the United States in the world.” However, the desire to use its national currency to put pressure on opponents, including limiting payments for Russia, became Washington’s gravest strategic mistake, Putin believes.
“They struck a blow to this American power. I don’t want to use any unliterary expressions, but this is stupidity and a huge mistake... Even among US allies, dollar reserves are now declining. Everyone looks at what is happening and begins to look for an opportunity to protect themselves... If in relation to some countries the United States applies such restrictive measures as limiting payments, freezing assets, and so on, this is a huge alarm and a signal for the whole world,” explained Putin.
Golden Solution
Let us recall that in 2022, after the start of the SVO, Russian banks were disconnected from the international platform for transmitting financial messages SWIFT, as well as from the Visa and Mastercard payment systems. Along with this, the United States introduced a complete ban on the export, sale and supply of dollar bills to the Russian Federation, and also, together with its EU and G7 allies, froze almost half of Russian gold and foreign exchange reserves (worth $300 billion) and are now discussing the possibility of confiscating this money.
“The freezing of Russian reserves increases the level of risks and distrust in the dollar in the eyes of some countries. A number of countries are increasing their reserves by transferring their funds to gold, since it is the safest asset. Plus, its value has now reached historical peaks, which has stimulated an additional influx of investments in the precious metal,” Alexander Abramov, head of the laboratory for analysis of institutions and financial markets at the Institute of Applied Economic Research at RANEPA, told RT.
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As experts from the World Gold Council (WGC) calculated, in 2022 the world's central banks purchased a record 1,082 tons of the precious metal. In 2023, the volume of purchases decreased slightly - to 1037 tons, but still remained at a level almost twice as high as the average for the previous ten years.
Last year, the most active buyers of gold were China (225 tons), Poland (130 tons), Singapore (77 tons), Libya (30 tons), Czech Republic (19 tons), India (16 tons) and Iraq (12 tons). According to a WGC study conducted in May 2023, more and more countries are beginning to consider the precious metal as an alternative to the dollar for storing gold and foreign exchange reserves.
“Our survey showed that 24% of Central banks intend to increase their (gold -
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) reserves in the next 12 months. At the same time, the attitude of the Central Bank to the future role of the dollar (in the structure of gold and foreign currency reserves. -
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) became more pessimistic... On the contrary, their views on the future role of gold turned out to be more optimistic: 62% said that gold will have a larger share in the total volume of reserves,” - the report said.
Taking into account current trends, the share of the dollar in world reserves will likely continue to decline, while the role of other financial instruments on the global stage will only increase, says Alexander Abramov. Moreover, in his opinion, we can talk not only about gold, but also about the yuan or digital currencies.
“Emerging economies will grow faster than the US, so the dollar's share will fall and could fall below 50% over the next ten years. For the United States, this state of affairs will be somewhat painful, since the popularity of the dollar strengthens the finances of the United States. The country will have to adapt to new conditions and increase the competitiveness of its goods on global trading platforms,” concluded RT’s interlocutor.