Dominant Currency - Depends on a how you count dominance

There has been significant talk about the dollar losing its dominant position in global trade and capital flows. This talk happens on a regular basis when the dollar declines or there is some global event that creates questions on dollar hegemony.  It is always good to go to data to see which currencies are dominant. 

Many investors look first at the foreign exchange reserves held in dollars. That reserve number has fallen over the long-run but seems to be stable at around 60%. Capital flows are a critical number given these flows dwarf trade. International debt issued in dollars is above 60%. More countries have increased their local currency international debt given their stronger sovereign balance sheets, but the dollar is still supreme. International loans and deposits, capital flows not in the form of issued bonds, is still slightly below 60%. The dollar is still dominant for trading; however, increased stable bilateral trade allows for trading outside of the dollar. Exports using the dollar as an invoicing currency is also above 50% and the global payment currency through SWIFT is also dollar dominant. 

The second dominant currency is the Euro, yet its second place position is based on the flows across countries in the Eurozone and EMS. French trade with Spain in Euros will be booked as international currency transaction. As trade within Europe increases, the Euro grows in importance; however this may not translate to trade with other parts of the world. The yen and  Renminbi hold the third and fourth positions.

The Renminbi is likely to grow as an invoicing and payment currency based on the growing trade between China and many EM countries. This is also a place where the RMB can be used for trade financing. Given the export flow of commodities to China and the import flow of goods from China, there is a natural play for this trade to use Renminbi, yet even here, the invoicing and payment choice will be based on the particular company doing the business. A commodity firm may not want payment in RMB if they cannot convert to make their payments in local or another currency like dollar. 

The currency system is complex with network inertia causing friction against change. Will dollar hegemony decline? Yes, but this process is going to take some time.