The ongoing conflict between Russia and Ukraine, now spanning over two years, is reshaping the global economic landscape in profound ways. As the most significant regional war in Europe since the Cold War, its ripple effects continue to influence international markets and financial strategies.
A recent report by the Chongyang Institute for Financial Studies at Renmin University highlights a notable trend: the acceleration of economic decoupling. The United States has intensified the use of economic and financial sanctions, prompting emerging markets worldwide to pursue de-dollarization.
Approximately 70 countries are actively engaging in de-dollarization efforts. These initiatives include the development of cross-border payment systems, the exploration of regional currency alliances, the settlement of cross-border trade in local currencies, and the advancement of central bank digital currencies. Such measures reflect a strategic shift away from the U.S. dollar's dominance in global trade.
Despite these efforts, the U.S. dollar remains steadfast in its role as a major international currency. From 2021 to 2023, the share of U.S. dollar reserves held by countries stayed consistent at nearly 60 percent. However, there has been a slight decline in the share of the euro and other major currencies, with the euro's global reserves dropping by about one percentage point, partially offset by increases in reserves held in smaller and emerging market currencies.
The conflict has also caused significant volatility in international financial markets, leading to surges in energy and food prices. In June 2022, the U.S. consumer price index reached a 40-year high of 9.1 percent, necessitating sharp interest rate hikes. These hikes were a contributing factor to the European and American banking crises in 2023.
Global investors are increasingly wary of geopolitical risks, resulting in heightened risk aversion across financial markets. In 2022, major U.S. stock indexes experienced their largest annual declines since the 2008 global financial crisis. Concurrently, high U.S. dollar interest rates have attracted capital back to the United States, increasing capital outflow pressures on emerging economies and exacerbating debt crises in low- and middle-income developing countries.
Reference(s):
cgtn.com
