Bitcoin’s De-Dollarization Narrative Loses Ground as USD Tightens Its Grip on International Transactions

Bitcoin’s share in international transactions reached a ten-year high in 2023, according to a note from Credit Agricole to its clients. Despite calls for “de-dollarization” and concerns about the U.S. dollar’s role as the global reserve currency, the data shows that the dollar remains the most favored currency in international transactions, with global demand for U.S. government bonds remaining steady.

The note from Credit Agricole’s G10 FX strategy team highlighted that the USD’s share in international SWIFT transactions surged in 2023, reaching its highest level in over a decade. In contrast, the share of the euro collapsed, while the Japanese yen and British pound moderated. This growing importance of the USD as the currency of choice for international payments and transactions is seen as a reason for global official and private investors to continue buying the currency, which could slow down any push towards de-dollarization.

The note also mentioned that the USD’s share in foreign exchange reserves held by central banks worldwide remained steady at 59% in 2023, the same level as the previous three years. On the other hand, the euro’s share dipped to its second-lowest level since 2017.

Regarding foreign investment in U.S. Treasury bonds (USTs), the note stated that non-Asian nations compensated for the decline in China, Hong Kong, and Japan’s holdings in 2023, keeping the global tally steady. The note emphasized that expectations of aggressive unwinding of USD holdings are premature, as demand for USTs from the rest of the world held up reasonably well.

China’s stockpile of U.S. Treasury bonds continued to decline, totaling $769.6 billion in October, marking a seventh consecutive monthly drop and a decline of $97.5 billion in ten months of the year. This decline in Treasury holdings by China and other nations correlated with the fall of their respective foreign exchange reserves. China, for example, has traditionally parked reserves earned through trade surpluses in U.S. Treasury bonds, supporting American consumption.

Overall, the data suggests that the dollar is likely to remain the currency of choice or haven asset during times of global economic stress. This preference for the dollar could divert money from other assets like bitcoin and stocks. Despite the calls for de-dollarization, the USD’s dominance in international transactions and demand for U.S. government bonds remains strong.