The US dollar remains dominant



The US dollar will remain the dominant currency in the world despite the growing popularity of the Chinese yuan, analysts told the Manila Times.

The chief economist of Rizal Commercial Banking Corp. (RCBC), Michael Ricafort, noted that the dollar was still the primary currency used for global trade and other transactions.

He did not, however, deny the fact that other major currencies such as the euro had emerged as alternatives or supplemented the use of the dollar for activities such as hedging and composition of foreign exchange reserves.

“The use of the Chinese yuan as a major world currency has also increased over the years, also as a way to diversify against the US currency in various business activities, transactions and other global financial activities,” noted Ricafort.

This was expected, he added, as China had become the world’s second-largest economy behind the United States and was a major, if not the most important, trading partner for many countries.

If China expands further to take the crown of the world’s largest economy, the use of the yuan in global trade, investment and other activities will increase even more, the RCBC economist said.

The yuan becoming the world’s main currency would be a different scenario, however, given the dollar’s long-standing global acceptability.

“It would also be a function of China’s increased and improved diplomatic and trade relations with more countries in the world,” Ricafort added.

IHS Chief Economist Markit Asia-Pacific Rajiv Biswas also highlighted the continued importance of the US dollar, noting that it accounts for almost half of all trade payments globally and is also the main reserve currency. in the world. He added that in 2020, US dollars made up about 59% of foreign exchange reserves held by central banks around the world.

“An important factor supporting the central role of the US dollar in the global financial system is the large size of the US stock and bond markets, which make holdings of US dollar-denominated financial assets essential for the investment portfolios of central banks, sovereign wealth funds , financial institutions and businesses, ”he explained.

China, meanwhile, does not yet have full convertibility of the yuan capital account, noted IHS economist Markit, although this is a target of the People’s Bank of China. As a result, the yuan continues to have a considerably lesser function as an international currency compared to the dollar, euro and yen.

“Therefore, the USD is expected to continue to play a dominant role as the world’s leading international currency for the foreseeable future,” Biswas said.

PH reserves

Due to the supremacy of the dollar, the Philippines’ international reserves are measured in this currency.

The Bangko Sentral ng Pilipinas (BSP), which is in charge of managing the country’s gross international reserves or GIRs, said it maintains a healthy level to provide liquidity support in times of exchange rates and instability. of the balance of payments.

At the end of August, the Philippine dollar reserves stood at $ 108.05 billion. Gold, one of the assets that make up the GIR, was worth $ 9.15 billion. The Philippines claim on the general resources account of the International Monetary Fund (IMF) took a share of $ 797.2 million.

Special Drawing Rights (SDRs) or interest-bearing reserve assets created by the IMF to supplement member countries’ existing reserves amounted to $ 3.99 billion. A total of $ 90.67 billion in foreign investment and $ 3.41 billion in foreign exchange are also included in the RIF.

The current level “represents a more than adequate cushion of external liquidity,” BSP said.

It is also about 7.8 times the country’s short-term external debt based on original maturity and 5.4 times based on residual maturity, and is equivalent to 12.3 months of imports, payments and primary income.

The emerging GIR for 2021 has been estimated by the BSP at $ 114 billion or 11.1 months of import coverage. This is lower than a previous forecast

The chief economist of Rizal Commercial Banking Corp. (RCBC), Michael Ricafort, noted that the dollar was still the primary currency used for global trade and other transactions.


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