Looking for alternative reserve assets

Worries over falling foreign exchange reserves have been forcing many countries to look for alternatives to US dollar (USD) as reserve currency. Bangladesh, for instance, is concerned as its foreign exchange reserves position has been falling persistently since it reached its peak at over US$48 billion in August 2021. According to an estimate, the reserves have been falling by US$1.0 billion every year since. Reasons including high import bills, decline in volume of inward remittance, fall in export and so on are to blame for this situation. By the end of March this year, the forex reserves came down to as low as US$19.45 billion from US$20.78 billion in the previous month, according to BB data. These forex reserve figures have been calculated according to IMF guidelines. However, using conventional method of valuation as done by the central bank, the reserve amount by the end of March would come to US$24.81 billion. The Bangladesh Bank (BB) data say, the country's monthly import bill is around US$5.0 billion.
This amount of forex reserves is enough to meet the import bills for more than four months. But concern remains. Sri Lanka's experience with high inflation, currency depreciation and plummeting forex reserves led to political chaos. But the country has largely been able to get out of the crisis. Sri Lanka's crisis has been blamed on economic mismanagement by its government of that time. It is said that undertaking of mega projects that proved to be unprofitable played a major role in that country's economy going into a tailspin. Now, imagine that Sri Lankan Rupee was accepted as a medium of exchange internationally. Would then Sri Lanka's economy fall so fast even after all the mismanagement? Economies may fail, but the accelerated speed with which they tend to fail in the developing countries due to foreign exchange, or USD crisis, is indeed frustrating.
The consequent parleys that follow with the global lenders for support or outright bailout come invariably with strings attached. Needless to say, the strings have political dimensions that may compromise the recipient country's sovereignty. USD's pole position as global currency lies at the heart of the problem. Apart from such forex crises arising out of mismatch between normal financial inflow and outflow, they can also be created artificially. Consider the situation of Russia. Following its invasion of Ukraine, the US and its allies used sanctions to cut off the country's link with what is known as SWIFT (Society for Worldwide Interbank Financial Telecommunication). It is basically a cross-border messaging arrangement with the global payment system. Denied of its link with dollar-dominated world of financial transactions, what would that country do to continue business with other countries? Russia has, however, an advantage. It is that it has enormous reserves of fossil energy (oil and gas) that other economies like China and India want to buy. Actually, they made the trade transactions with their own currencies (ruble, yuan and rupee) avoiding USD. But all countries, especially poorer developing ones like Sri Lanka are not as powerful militarily or rich in natural and other resources to confront the US-led Western powers eyeball too eyeball. They ultimately suffer or yield to the donors'/lenders' conditions. Small wonder that USD still reigns supreme as the forex reserve of most countries, though its dominance has reduced significantly in recent years.
The overuse of sanctions to punish governments that won't see eye to eye with the major Western economic and political powers on many international issues has, of late, put the future role of USD in the global economy under serious scrutiny. China, which has also come under US sanctions including stringent tariff measures against its products in the US market as part of the ongoing trade war between the two countries, has been working to come up with an alternative to the dollar. China's official currency, renminbi (RMB) is trying to establish its position as an international currency. Meanwhile, it has been creating its own Cross-border Interbank Payment System (CIPS) similar to the US's Clearing House Interbank Payment System (CHIPS). CIPS, therefore, acts as a clearing and settlement mechanism for movements of funds in Chinese currency, RMB, from one institution to another. Simultaneously, it is also in the process of developing an alternative to the messaging facility like SWIFT. India has already been using its own currency, rupee, and UAE's dirham to pay for Russian oil. Turkey, which also imports oil from Russia, has agreed to make part of its payment in Russian ruble.
Recently, members of ASEAN have opted for using their own currencies in trade-related transactions. Even some advanced economies like Australia and France are conducting their trade deals with China in yuan. The BRICS group, for instances, has been encouraging member countries to use their respective currencies for settling payments against bilateral as well as intergroup trade deals. Also, the group is trying to develop an international reserve asset like IMF's Special Drawing Right (SDR). Notably, SDR is not a currency as such, but it can be exchanged for different currencies freely used among IMF member nations. That apart, the BRICS group is also in the process of developing a common currency backed by gold. The emerging markets, which already account for around 44 per cent of the global economy, are strongly pushing for de-dollarisation. That is about the process of moving away from their dependence on USD as the main reserve currency.
Finding itself in severe dollar reserve crisis, it is time Bangladesh also looked for alternative arrangements for clearing and settling its funds in currencies other than US dollar. Also, Bangladesh should consider adopting various alternatives to US dollar as reserve assets including gold and other strong currencies of the region.

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