The global data regarding the FX structure of transactions is also suggesting that the US dollar didn’t lose ground in 2023. Here the international SWIFT system with its over 11,000 participants and over $400bn in daily transaction volume and monthly disclosures remains the primary data source. One important caveat for the 2023 data is that there has been a change in methodology which led to the exclusion of a large portion of non-transaction financial messages done by European central banks. This has led to a material drop in the previously inflated share of the euro in transactions. Therefore, both the 14ppt decline in the EUR share to the 22-23% level, the 6ppt increase in the share of USD to 46-47%, and the increase in the shares of ‘other currencies’ should be taken with a pinch of salt. Nevertheless, the overall picture suggest that the US dollar at least didn’t lose its dominant position in transactions, in line with the decade-long trend.
The US dollar has not lost its dominant position in transactions
Another general observation from the SWIFT data, is that despite the stable and high role of the US dollar, diversification is taking place at the regional level and is focused primarily on the Asian currencies. RMB has gained the most in 2023, showing a 2ppt (or 1.3ppt net of the effect of changed methodology) increase in the share to 4.0% in the last year. Meanwhile, the Chinese yuan is not the only winner: Singapore dollar gained 1ppt (0.7ppt net of the methodology shift), while JPY’s share increased 1ppt (or by 0.3ppt net of the shift). The change in other major currencies, including GBP, CHF, CAD, AUD adjusted for the changed methodology was, in our estimates, negative. Finally, the group of less common currencies also posted a sizable gain of 2.2ppt (including a statistical boost of 1.4ppt). In a sense, apart from the growth in the role of JPY in transactions, which perhaps requires further investigation, this suggests a divergence in the trends between transactions and assets and hints at some diversification in trade at least at the regional level.
One illustration of this diversificaion would be the wider usage of non-traditional reserve currencies, such as AED, following the expansion of BRICS (see our review of the results of the August 2023 summit on the right). Moreover, the anecdotal evidence from Turkey, which according to Bloomberg saw an increase of transactions in AED (in addition to RMB and other currencies), suggests that diversification of trade is taking place not just due to BRICS. We do not exlude, that the noticeable rise of below-the-radar currencies in the SWIFT data (with shares below 0.3%) seen in 2023 may reflect this trend. This raises the question of whether higher diversification of transactions will inevitably lead in higher variety in assets and liabilities, but the answer is not strraightforward, in our view. On the one hand, higher usage of new currency in trade may prompt a shift in other areas, but on the other hand, longer-term holding of a currency has different requirements in terms of instututional framework.
