The U.S. is the second largest goods exporter in the world, but its share of global trade has declined in recent years. However, this should not be conflated with de-dollarization, as Chang noted.
“More likely, the slight weakening in trade intensity reflects some convergence in cost differences across countries, maturation of existing trade liberalization initiatives, more intra-country trading on rising demand from domestic customers and growing service intensity of economies,” Chang said.
Similarly, USD’s share of FX reserves, the most commonly analyzed barometer of dollar dominance, has decreased, notably in EM. Central bank FX reserves are typically held in U.S. dollars, but the latter is now being supplanted by other currencies. “However, FX reserves offer an incomplete picture of foreign asset accumulation. The rise in EM dollar-denominated bank deposits, sovereign wealth funds and private foreign assets more than offsets the decline in overall dollar share of EM FX reserves,” explained Saad Siddiqui, EM fixed income strategist at J.P. Morgan.
All in all, while global trade and FX reserves have flatlined, the dollar still retains its influence in this space, especially when taking into account other factors including dollar-denominated bank deposits, FX volumes and trade invoicing. “Overall, the dollar’s transactional dominance remains undisputed,” Chang said.
