The status of the US dollar as the kingpin currency is pretty much overrated, as America’s share in the global economy has been dramatically falling since the Second World War, says prominent economist Jim O’Neill.
“We live in this very peculiar situation where the role of the dollar in global finance is just idiotically more important than the US economy. So, if a strong economy translates directly into a higher dollar, some of these things just sort-of follow like night and day,” he told CNBC.
The US share of global GDP now stands at 18 percent, a significant slide from the 30 percent seen after World War II. The Chinese economy has quadrupled to 16 percent, while emerging markets like the BRICS countries (Brazil, Russia, India, China, South Africa) and others account for 60 percent of global GDP.
Despite this, the dollar is predominantly used by some 60 percent of countries, accounting for 70 percent of global GDP because of the Bretton-Woods system. The Chinese yuan has become more widely used, but still accounts for just 1.84 percent of global reserve currencies, while the US dollar reserves still have a vast 62.25-percent share, although this is its lowest level since 2013.
“The kingpin role of US policy and the dollar in world finance is an issue, and the US economy, over [the last] 30 years, has gone to less than 20 percent of world GDP, and yet the dollar is seemingly playing this dramatic role,” O’Neill said.
BRICS emerging economies have recently been increasing settlements in local currencies to avoid using the dollar. Countries like China, Russia and Iran are in talks to substitute the greenback in oil trade.