Central banks around the world are now looking for ways to get around the US dollar’s world reserve status, according to former Morgan Stanley executive and investment veteran Ruchir Sharma.
In an interview with France 24, a French government sponsored outlet, Sharma says America’s biggest economic rivals have been working out ways to transact with each other without using the dollar.
“Nations are increasingly speaking with each other on how not to use the US dollar as a medium for transactions.
You have Saudi Arabia and China talking, they trade in oil. [They’re determining] how to do it in a way where the US dollar is not used and they can settle their payments in each other’s currency. You have India talking in a similar way with the UAE, which is that how do you cut the dollar out as a denominator.”
Sharma, chairman of Rockefeller International, says that leading economies are also diversifying their foreign exchange reserves by relying less heavily on the dollar, and instead allocating to gold at a rapid rate.
“Most central banks tend to hold foreign exchange reserves in other currencies, predominantly the US dollar. But over the last year or so, what they have done is that they have been diversifying and buying gold in a very big way. The central bank holdings of gold are increasing at [nearly] the sharpest pace that we have seen in history.
So central banks from Brazil, to India, to China, Turkey, all these central banks are buying gold in a very big way, and instead of holding their foreign exchange reserves in the US dollar, they’re holding it increasingly in gold. And therefore the price of gold has surged so sharply over the last few months.”
Sharma says the US may have overplayed its hand when it launched sanctions against Russia during its conflict with Ukraine, inadvertently sending a message to other countries that they could also face consequences for being on the wrong side of a conflict.
“The problem the United States is having, a lot of its commentators, even policy makers, believe that there is no alternative, that all these nations can whine, but at the end of the day they have no alternative to holding the US dollar, and the Chinese currency is not fit to be held and the Euro has its own problems. So there’s a lot of complacency, if not arrogance that the US does not really need to do anything. ‘There is no alternative’ is the mantra.”
The macro expert says that while many have questioned the significance of the US dollar losing its reserve currency status, he warns that such a mentality is “naive” given how reliant the US is on the dollar’s supremacy.
Instead of a legitimate call to action, Sharma says he’s only seeing “a lot of complacency and arrogance.”
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