SMM

Recently, there has been a lot of talk around the world about "de-dollarisation". In response, Bank of America (BofA) said in a report that fears of de-dollarisation were overblown and that the dollar's dominance would not end soon.
According to the BofA, the dollar is more vulnerable to domestic fiscal problems than competing currencies, especially if the US is at risk of its first default.
"Because much of the USD's dominant role comes from standing in front of the TSY market, surprise defaults from a debt ceiling showdown would compromise the dollar's attractiveness as a store of value," BofA wrote. "Therefore, the key threats to the USD's dominant role seem largely domestic, as opposed to competition from other currencies."
The long-term risk to the dollar, in the view of BofA analysts, is US complacency about debt.
They note in their report that US government debt as a percentage of GDP is second only to Japan among the G10 countries. The IMF expects US government debt to climb to 136% of GDP by 2028, up from 122% in 2022.
In addition, the BofA noted that "during the debt ceiling discussions, US fiscal brinksmanship has continued to emerge, policies that could lead to a US government shutdown and even the risk of default.
The so-called "brinkmanship" is when lawmakers hold the country's full credit and credibility hostage in order to force the other side into submission, dragging out the impasse until the last minute.
Republicans in the US Congress are demanding deep cuts in government spending in return for their agreement to raise the debt ceiling, and the White House is refusing to accept any terms. The two sides are now at an impasse, despite the fact that the US government could be in default as early as June 1.
US dollar still dominates
Analysts at BofA said that although the dollar has lost market share as a reserve currency, it still dominates in trade, SWIFT payments and other areas.
According to a report released in April by Eurizon SLJ Asset Management, a leading global asset management firm, the dollar's position as the world's preferred reserve currency declines sharply in 2022. In 2003, the dollar's share of total global foreign exchange reserves was around two-thirds, dropping to 55% by 2021, and further to 47% last year.
The US dollar is still the main currency for trade between countries, Eurizon said. Citing data from the Bank for International Settlements' triennial foreign exchange survey, the report said the dollar's share of all currency transactions was 85% in 2010, compared to 88% in 2022.
The Bank of America also noted that stablecoins are the only digital asset that could disrupt currency trends, but that dollar-backed cryptocurrencies could actually strengthen the US dollar's position.