The emergence of new regional payment systems likely won’t spur de-dollarization, OMFIF said.
So far, their infrastructure is weak and they are plagued by implementation challenges.
A bigger de-dollarization threat comes from the euro, given high liquidity and excellent infrastructure.
De-dollarization risks are on the rise, but rising alternative transaction networks won’t be the basis of a major decline in the use of the US currency, the Official Monetary and Financial Institutions Forum said.
According to commentary published Thursday, obstacles are already afflicting new regional payment systems, even as de-dollarization rhetoric creeps up.
“For instance, regional payments continue to suffer from weak implementation, infrastructure and complex geopolitical obstacles among participatory economies,” senior economist Julian Jacobs wrote. “This is why the emergence of the technological capacity to drive de-dollarisation does not necessarily mean de-dollarisation will occur.”
Such systems include tech initiatives such as mBridge, a cross-border platform built around emerging central bank digital currencies. Backing it are monetary authorities in China, Hong Kong, the United Arab Emirates, and Thailand.
Meanwhile, efforts to assemble regional financial systems have delivered the Pan-African Payment and Settlement System, OMFIF cited as one example. This infrastructure delivers payments in local currencies, in a step away from the greenback.
Still, none of these have been enough to shake how entrenched the dollar remains in world finance, OMFIF said. Not only does it account for 58% of global reserves, it tops all other currencies for its share of global payments.
As of April, it accounted for 47.31%, according to the latest data from the SWIFT financial system.
While countries may want to wean off of the dollar — especially in light of how the greenback was used to punish Russia over its invasion of Ukraine in 2022 — a major migration to regional payment systems would require economies to tackle a whole new set of issues, OMFIF said.
If de-dollarization is a rising threat, it’s instead coming from Western competition, the think tank said. That’s as the euro has come to serve as the world’s second top reserve currency and offers high liquidity and quality infrastructure.
To be sure, those worried over the greenback’s status have chiefly focused on China’s yuan, as Beijing pursues policies to bolster its international standing. For instance, it’s even launched its own payments infrastructure, the Cross-border Interbank Payment System.
But China’s efforts to create an alternative system are a defensive ploy for now, OMFIF wrote in a separate note from May.
“The goal is to minimise the negative consequences of the West’s comprehensive sanctions against China in extreme geopolitical scenarios such as a military conflict over Taiwan,” Council on Foreign Relations fellow Zongyuan Zoe Liu wrote. “Expanding the use of the renminbi in trade is less challenging than increasing its status as an international reserve currency.”
