The US Dollar's (USD) status as a global reserve currency is experiencing significant erosion, according to asset management firm Eurizon SLJ. Since the start of the Ukraine war, the dollar has seen an 8% decline in its market share as a reserve currency, which is roughly 10 times higher than the average capital erosion in prior years. As an example of this phenomenon, following the invasion of Ukraine by Russia, the Kremlin began to rely more heavily on the Chinese yuan, resulting in extreme economic isolation of the former nation. However, despite this significant estimated erosion, the BIS reported that the USD's share of currency turnover increased from 85% in 2010 to 88% in 2021.

What appears to have triggered the drastic drop in USD status was the muscular action taken by the US and its allies in the form of sanctions against Russia. This, together with the strain of political tensions between the two countries, has caused a fear that big reserve-holding countries may begin to distrust the US. Although these are not the only factors leading to the rapid decline of the US Dollar's status, the effect of the sanctions must not be understated.

Nevertheless, despite these market fluctuations, the Eurizon SLJ continues to expect the USD to remain as the dominant international currency for the foreseeable future. Only time will tell what the future holds for the USD and how drastically its status will change in the years ahead.



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