The ongoing Russia-Ukraine conflict, now in its second year as of February 24, 2024, continues to send ripples across the global economy. As the most significant regional war on European soil since the Cold War, its impact is both profound and far-reaching.
According to a recent report by the Chongyang Institute for Financial Studies at Renmin University, one of the standout consequences is the acceleration of economic decoupling. The United States has intensified its use of economic and financial sanctions, which has motivated emerging markets around the world to pursue de-dollarization.
So far, around 70 countries have embarked on de-dollarization efforts. These initiatives include building cross-border payment systems, exploring regional currency alliances, settling international trade in local currencies, and developing central bank digital currencies. This shift highlights a growing trend towards reducing reliance on the U.S. dollar.
Despite these changes, the report notes that the Russia-Ukraine conflict has not yet fundamentally altered the international monetary system. The share of U.S. dollar reserves remained steady at nearly 60 percent from 2021 to 2023, underscoring its enduring role as a major international currency.
However, there has been a slight decline in the share of the euro and other currencies. The global share of euro reserves decreased by about one percentage point, primarily being replaced by currencies from smaller mature economies and emerging markets.
The turmoil in international financial markets due to the conflict has also led to a surge in energy and food prices. In June 2022, the U.S. consumer price index hit a 40-year high of 9.1 percent, prompting a sharp increase in interest rates. This move was one of the triggers for the European and American banking crisis in 2023.
Global investors are now more cautious, with geopolitical risks heightening risk aversion in financial markets. In 2022, all three major U.S. stock indexes experienced their largest declines of the year since the 2008 global financial crisis.
High U.S. dollar interest rates are attracting capital back to the United States, which is putting pressure on emerging economies and exacerbating the debt crisis in low- and middle-income developing countries.
As the world navigates these economic challenges, the push towards de-dollarization signifies a potential shift in the global financial landscape. 🌐📉💡
