The US’s rivals are trying to unseat the dollar, which dominates global trade and investment flows. But some of the biggest names in financial markets think it’s unlikely that they’ll succeed. Here’s why Warren Buffett, Goldman Sachs, and others aren’t fretting about the de-dollarization movement. Loading Something is loading.
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De-dollarization has become a much-debated topic in financial circles of late, with major names including Elon Musk and Ray Dalio ringing the alarm about threats to the US currency.
But many of America’s top investors and economists aren’t losing sleep over the efforts to erode the dollar’s dominance of global trade and investment flows.
The anti-dollar drive, which frequently hit the headlines in recent months, is a movement that has seen several nations step up efforts to cut their reliance on the greenback for cross-border transactions – sometimes with the goal of undermining the US, for which the dollar is a source of considerable economic clout.
China and Russia have been spearheading the campaign to wean the world off the buck, after the US imposed massive financial sanctions on the latter country over Vladimir Putin’s invasion of Ukraine.
Over the past year, Beijing has called for its trading partners to accept the yuan rather than the dollar in commodity transactions, while Moscow has asked for natural gas contracts to be settled in the ruble rather than “unfriendly” countries’ currencies. Brazil and India are also pursuing some non-dollar trade initiatives.
Some worry that the anti-dollar drive will take hold across the world to chip away at the US currency’s dominance.
“If you weaponize currency enough times, other countries will stop using it,” Musk said last month, in an apparent critique of the US using its currency as a tool for sanctions.
Krugman, Buffett shrug off de-dollarizationBut his Tweet earned a quick rebuke from Nobel Prize-winning economist Paul Krugman.
“Tugging on one or two strands of this web isn’t likely to cause it to unravel,” he wrote in a New York Times op-ed. “Even if some governments express a desire to see payments conducted in other currencies, it’s not at all clear they can make that happen.”
“Elon Musk is among those warning that weaponizing the dollar will destroy its reserve currency status, because of course he is,” Krugman added.
Krugman’s jibe seems to speak for many top-level investors and economists, who have tended to dismiss the heightened talk of de-dollarization.
“I see no option for any other currency to be the reserve currency,” Warren Buffett said at Berkshire Hathaway’s annual shareholder meeting last week.
Bank of America and Goldman Sachs strategists have also expressed the same view in recent research notes – that despite Musk’s worrying, no other currency can really compete with the dollar.
Dollar remains the world’s reserve currencyTake the yuan, which some have labeled as the dollar’s greatest threat due to China’s renewed push to make it a key currency in international payments.
The currency is itself pegged to the dollar, and also tightly managed by a government that has a frayed relationship with the West.
And whereas the greenback still accounts for 60% of the world’s foreign exchange reserves, the yuan has just a 2.7% share, per the International Monetary Fund.
“To some degree, these questions arise whenever the dollar depreciates a bit,” Goldman Sachs strategists said in a research note last month, echoing the views expressed by Krugman and Buffett.
“There is a lot of inertia in reserve currency status,” they added. “So far, and likely for a long time to come, attempts at de-dollarization remain contained and constrained.”
Read more: What is de-dollarization? Here’s everything you need to know about rival countries’ efforts to dethrone the greenback