U.S. banking crisis is still ongoing and the International Monetary Fund (IMF) Managing Director, Kristalina Georgieva, spoke about growing vulnerabilities in the sector and a trend of de-dollarization globally at the 2023 Milken Institute Global Conference in Beverly Hills. Georgieva highlighted that the Federal Reserve’s rapid interest rate hikes have exposed weaknesses at some banks and more vulnerabilities may still come. Although the latest bank failure was that of First Republic Bank, she praised the swift action of U.S. regulators dealing with the situation.
Gradual Shift from the US Dollar
Georgieva acknowledged the gradual shift away from the US dollar worldwide, stating that 70% of reserves were once held in the dollar and now this has slightly under 60%. Although there is no current viable alternative to replace the US dollar as the world’s reserve currency, she sees the euro as the biggest competitor while the British pound, Japanese yen, and Chinese yuan play small roles. De-dollarization is being advocated by the BRICS nations and the economic bloc is working to create a new currency that will help reduce reliance on the USD. A Russian official recently mentioned that he expects an agreement on a BRICS currency to happen this year.