ECB President Lagarde on De-Dollarization: Reserve Currency Status Should No Longer Be Taken for Granted

European Central Bank (ECB) President Christine Lagarde has warned that the U.S. dollar’s reserve currency status “should no longer be taken for granted.” Acknowledging de-dollarization efforts by various countries, she stressed: “New trade patterns may have ramifications for payments and international currency reserves.”

ECB’s Christine Lagarde on De-Dollarization and Alternative Currencies

The president of the European Central Bank (ECB), Christine Lagarde, shared her thoughts on the de-dollarization trend happening across the globe in an interview with the Council on Foreign Relations last week.

Noting that the U.S. dollar has become “the international, the global reserve, and the transaction currency” with the euro in second place, she warned that “new trade patterns may have ramifications for payments and international currency reserves.” The ECB president continued: “In recent decades, China has already increased over 130-fold its bilateral trade in goods with emerging markets and developing economies, with the country also becoming the world’s top exporter … New trade patterns may also lead to new alliances.”

Lagarde added, “Recent research indicates that there is a significant correlation between a country’s trade with China and its holding in renminbi as reserves.” Noting that “One study finds that alliances can increase the share of a currency in the partner’s reserve holdings by roughly 30 percentage points,” the ECB chief cautioned:

All this could create opportunities for certain countries seeking to reduce their dependency on our Western payment system and currency frameworks.

However, Lagarde emphasized: “These developments do not point to an imminent loss of dominance for the U.S. dollar or for the euro … So, so far the data do not show substantial changes in the use of international currencies.” Nonetheless, she admitted that data do suggest:

International currency status should no longer be taken for granted, and that we should be really attentive to the currency in which trade transactions are organized.

A growing number of countries are using local currencies for trade settlements instead of the U.S. dollar. In addition, the BRICS nations (Brazil, Russia, India, China, and South Africa) are reportedly creating a new type of currency that will further reduce their dependence on the USD.

What do you think about the statements by ECB President Christine Lagarde? Let us know in the comments section below.

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