Dedollarization of global FX reserves? Not so fast, Allianz says

• Recent moves led by China and Russia to challenge the dollar's global dominance has attracted much attention.
• But Allianz says the greenback's supremacy faces no serious threat, saying "any significant switch will take a long time to evolve".

A growing movement among nations from China to Argentina to challenge the dollar's dominance of global trade and investment flows has attracted much attention of late. But the greenback's status as the world's reserve currency faces no real threat for the foreseeable future, according to Allianz.

The US currency's supremacy is cemented by the private sector's heavy reliance on it for transactions, and an unmatched supply of safe and liquid dollar-denominated assets that's available for global central banks to invest their reserves in, the German insurance-to-asset management giant said in a recent note.

Much has been made of a rival currency one day usurping "King Dollar" – with Beijing pushing for more yuan-based trade, the BRICS countries planning a currency backed by gold, and Argentina using the Chinese currency for bank accounts and making debt payments.

But any significant change to the dollar's reign "will take a long time," Allianz economists led by Ludovic Subran said.

"The dynamics affecting the US dollar's role as reserve currency are far more intricate than official statistics suggest and any material decline in the role of the US dollar in global finance will take much longer than current headline news on de-dollarization insinuate," they said in the note.

"The private sector's use of the US dollar for trade and investment rather than the portfolio allocation choice of central banks will shape the currency's status," they added.

The greenback's role in private-sector transactions has remained virtually unchanged, with only slight adjustments based on foreign-exchange turnover, bond issuance by non-financial corporates and SWIFT payments, according to Allianz.

"In addition, reserves are predominantly invested in safe and liquid assets, but the non-US dollar investment universe remains too small and fragmented to absorb reserves demand, especially in those EM countries that have been most critical of their US dollar dependence," the economists wrote.

The dollar still makes up almost 60% of all global reserves – while China's yuan accounts for just 3%, according to the International Monetary Fund. It's also the currency with which crude oil, natural gas and other key commodities are traded – facilitating contracts for countries worldwide.