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The war against the dollar is heating up

Reproduced from Bloomberg via Bank of Russia; Chart: Axios Visuals

Experts are again sounding the alarm that the dollar could lose its role as the world's reserve currency. This is a frequent and historically unconsummated concern — but things may actually be different this time.

What's happening: New data from the Bank of Russia show the country now receives more euros than dollars for its exports to China, with the share of goods purchased in euros rising from 0.3% at the start of 2014 (and just 1.3% in the second quarter of 2018) to nearly 51% at the end of Q1 this year.


  • The share of euros Russia receives for exports to the European Union increased to 43% from 38% at the end of last year, the data show.

Why it matters: The euro is the dollar's strongest competitor, making up the second largest percentage of global currency reserves — 20% of central bank holdings versus around 60% for the dollar, according to the IMF.

Flashback: As I wrote last week, more speculators are lining up bullish bets that the euro will rise and that the dollar will fall than at any time in history, according to CFTC data.

Between the lines: A growing chorus of investors, including billionaire hedge fund manager Ray Dalio, has worried openly in recent months that the U.S. response to the coronavirus pandemic — trillions in balance sheet expansion from the Fed and trillions in government spending while still having the world's worst outbreak — is further undercutting the dollar's supremacy.

  • Goldman Sachs currency strategists have pointed to the rising value of gold as evidence that the U.S. could be "debasing" its currency and creating “real concerns around the longevity of the U.S. dollar as a reserve currency.”
  • Instead of dollars, many central banks have increased purchases of gold, especially those in China, Russia, India and Turkey in recent years, with 2018 and 2019 the first and second highest years for annual purchases on record.

The big picture: There has been a long-term concerted effort by Russia and China to move the world away from the dollar — this is now aligning with the coronavirus pandemic, the eurozone's unification, and a moment of weakness for the United States.

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