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US Treasury secretary Janet Yellen defended the global dominance of the dollar after leaders of some of the world’s largest emerging markets questioned the outsized role of the world’s premier reserve currency in global trade.
South Africa’s President Cyril Ramaphosa at a finance summit in Paris on Friday appeared to back calls from Brazil’s president Luiz Inácio Lula da Silva for emerging markets to review their reliance on the greenback. Lula, who appeared on a panel with South Africa’s leader, has advocated switching to trading in their domestic currencies and other alternatives.
After Lula argued the international use of the dollar put countries such as Brazil at a disadvantage, Ramaphosa said “the issue of currency” would be “on the agenda” for the upcoming meeting of Brics countries later this year. South Africa is due to host the meeting, which also includes Brazil, Russia, India and China, in August.
Yellen suggested it would be difficult for countries to find viable replacements for a currency that has dominated trade for decades.
“There is a very good reason why the dollar is used widely in trade and that’s because we have deep, liquid, open capital markets, rule of law and long and deep financial instruments,” she said in Paris at a press conference to close the summit.
Her comments came as China pushes for greater international adoption of the renminbi. Russia has switched to using the Chinese currency as one of its main currencies for international reserves and overseas trade in the wake of its invasion of Ukraine.
The freezing of $300bn-worth of Russian central bank assets by Ukraine’s western allies — most of which were held in dollars and euros — has sparked concerns Washington will more regularly use its currency’s global dominance as a vehicle for its foreign policy aims.
US authorities also in 2021 seized assets belonging to Afghanistan’s central bank that were held at the New York Federal Reserve. Yellen said such sanctions were only imposed “on countries that are guilty of enormous abuses, including human rights abuses”.
While some central banks have responded to the sanctions on Russia’s central bank by buying gold, they still keep just under 60 per cent of their reserves in the US currency, according to IMF data.
The dollar remains the most common global currency for exports. Many economists and companies view controls placed by Beijing on the use of the renminbi as a limiting factor in its global adoption.
At the closing ceremony of the Paris summit, hosted by France’s Emmanuel Macron and Barbados’ prime minister Mia Mottley, Lula reiterated his concerns about the impact of the dollar’s dominance on low and middle-income countries.
Lula said some people were “afraid” when he talked about replacing the dollar, but he argued its dominance put countries such as Brazil at a disadvantage when it came to trade.
When Argentina and Brazil or China and Brazil trade with one another, “why can’t we trade in our own currencies?” he asked.
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