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De-dollarisation interest jumps amid financial fragmentation, but US dollar dependence not ‘a very easy thing to overcome’

Interest in de-dollarisation is increasing given growing financial fragmentation risks worldwide, according to a report, but there is still not a credible alternative to the US dollar despite yuan internalisation efforts, political and financial leaders said at a forum at the weekend.


The report by the International Finance Forum (IFF) attributed the trend of using regional currencies rather than the US dollar to the adverse spillovers of unprecedented US monetary tightening.The US Federal Reserve raised interest rates 11 times in 17 months, hitting a 22-year high in July. “[De-dollarisation] could be one of the unintended consequences of the financial fragmentation,” the IFF report released on Saturday said.


Rising de-dollarisation could offer Beijing a chance to advance its ambitious plan of promoting more use of the yuan overseas, although the latest assessment from the People’s Bank of China (PBOC) suggested it still has quite a long way to go to challenge US dollar dominance.

Financial sanctions could be weaponised, along with other forms of restrictions including embargoes, trade wars, seizure of assets, limiting access to capital and technology and screening of investments, which could eventually lead to global financial fragmentation, the report warned.However, political and financial leaders said at the IFF in Guangzhou on Saturday that there is not a credible alternative major currency that could absorb much of the global operations occupied by the US dollar.


The 2023 Global Finance and Development Report by the IFF echoed research released by the PBOC on Friday, which showed the yuan’s share in global payments, trade finance and central bank reserves is still far behind the US dollar despite progress in the past decade.

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