New payment systems could weaken dollar dominance and spike de-dollarisation, says JP Morgan

Representational Pic

Signs of de-dollarisation are becoming increasingly apparent in the commodities market, particularly as energy transactions are being priced in currencies other than the US dollar, according to a recent report by JP Morgan.

The report highlights, "Some signs of de-dollarisation are evident in the commodities space, where energy transactions are increasingly priced in non-USD currencies." This shift reflects a broader trend in which global trade and financial systems are evolving to accommodate alternatives to dollar-based transactions.

JP Morgan noted that new payment systems are emerging globally, facilitating cross-border transactions without the involvement of US banks. This development could undermine the dollar's influence and, potentially, the Western financial infrastructure as a whole.

De-dollarisation, as defined in the report, involves a significant decline in the use of the US dollar for international trade and financial dealings. The report indicates that while the dollar remains the primary reserve currency worldwide, its share of foreign exchange reserves has been decreasing, especially in emerging markets.

Despite the ongoing decline, the US dollar is still extensively used for global trade and transactions. However, its supremacy has come under increasing scrutiny due to recent geopolitical developments. Joyce Chang, Chair of Global Research at JP Morgan, remarked, "The narrative that the US dollar's reserve currency status is being eroded has gained momentum as the world is dividing into trading blocs following Russia's invasion of Ukraine and the heightened strategic competition between the US and China."

Moreover, the BRICS nations - Brazil, Russia, India, China, and South Africa - are exploring the possibility of launching their own currency for trade among member states. This move could signify a significant step towards reducing dependence on the US dollar.

The BRICS bloc boasts a combined GDP of approximately USD 28 trillion, which accounts for about 27 per cent of the world's GDP. When considering purchasing power parity (PPP), the total GDP of the BRICS countries rises to around USD 65 trillion, representing roughly 33 per cent of the global GDP PPP.

During the recent BRICS summit in Kazan, Russian President Vladimir Putin stated that the economic landscape has changed dramatically since 1992, when the G7 nations accounted for 45.5 per cent of global GDP while BRICS countries represented only 16.7 per cent. According to data from 2023, the BRICS bloc now claims 37.4 per cent of global GDP compared to the G7's 29.3 per cent. "The gap is widening, and this trend will continue," Putin added.

(With inputs from ANI)