Building on a previous post on the de-dollarization debate, a snapshot of Russian trade invoicing data gives a sense of a potentially maximum speed of the dollar’s declining use in some quarters of the global economy, while also revealing how Moscow’s trading partners are willing to part with rubles but unwilling to receive them.
As has been widely reported, trade with Russia since the start of the war in Ukraine in February 2022 is being invoiced increasingly in Chinese yuan, at the expense of the dollar and euro. Russian imports in CNY have increased over 8x from January 2022 to June 2023, rising from $1.1bn to $9.1bn over that period. Meanwhile, USD and EUR fell from a combined $17bn to $8.5bn, with the USD experiencing a drop of around 60%.
And while these comparisons exclude seasonal adjustments, the trend is clear, and comparing year-on-year growth readings for June 2023 versus June 2022 tells the same story: CNY: +148%, USD: -57%, EUR: -35%.
In percentage terms, USD has declined in Russia’s import invoicing from 39% in January 2022 to a mere 16%, while EUR shrank from 26% to 16% as well. That is a combined 33 percentage-point drop for both currencies.
In the same period, CNY’s share rose 30 ppts, from 4% to 34%, almost entirely replacing USD and EUR. Moderate increases in the shares of other currencies and the RUB explain the remainder, though the fact that the RUB has only risen 1 ppt suggests that exporters to Russia are reluctant to accept Moscow’s currency.
Looking at the export side reveals a similar picture. Only $170mn Russian exports were invoiced in CNY back in January 2022, whereas in June 2023 these exceeded $8.1bn. While the USD and EUR each accounted for $25bn and $17bn at the time, these have fallen off to around $7bn and $2bn currently, respectively.
In contrast to Russian imports, where the USD’s decline was more precipitous, it is EUR that had the faster drop in the case of exports, likely due in significant part to the sharp reduction in Russian energy exports to Europe. Another difference is that, unlike Russia’s imports, which have remained somewhat stable over this period, the country’s exports appear to be on a declining trend, pointing to downward pressures on the trade balance.
Staggeringly, CNY now accounts for a quarter of payments that Russia receives for its exports, up from less than half a percent 18 months prior. The USD share is down from over half of all export receipts to some 23%, while the EUR has decreased from 35% to 7%.
Surprisingly, RUB has increased markedly, from 12% to 42%, though this makes good sense if one considers that foreign buyers are likely keen to reduce any long exposures they may have to the ruble. Such positioning currently appears to prescient, given the RUB’s significant weakening to ~100/USD at the time of writing.
Future posts will explore the implications for the dollar’s role and the bigger question of using frozen Russian assets for the reconstruction of Ukraine.
De-dollarization has become an increasingly popular topic in recent years, and for good reason. Indeed, the global economy has been gradually entering a period of deglobalization for the past decade or so, and, in parallel, the U.S.-led nature of the international economic order is facing challenges from geopolitical competitors and a disenchanted Global South.
Yet much of the ideologically-driven discourse on the greenback’s supposedly-imminent demise fails to account for the USD’s security and demographic underpinnings and the absence of viable alternatives. The U.S. dollar’s role is both a reflection of and a driving force behind the moral values governing the global financial architecture, with significant implications for global economic growth, international security, and the fate of Ukraine.
This article will be the first of many to explore de-dollarization and related phenomena, including sanctions, trade, and geopolitics. As a starting point, tracking the use of the U.S. dollar in international sovereign reserves and in international trade provides a solid foundation for further analysis.
Official Foreign Exchange Reserves
The chart above illustrates the prominence of the USD in governments’ international reserves, accounting for over $6.5 trillion as of Q1 2023 – nearly 60% of the global total.1The “unallocated” reserves in grey are merely the USD value of official FX reserve assets for which the IMF has no currency decomposition. The IMF collects this currency composition of reserves data from its member countries, many of which report it on an anonymized basis for public disclosure.
Unfortunately, a currency breakdown of reserves by country appears to be unavailable to the public via the IMF, which is partly understandable given geopolitical sensitivities that some countries may have in revealing this information. Still, this opacity is yet another of a plethora of examples of sovereign financial data transparency practices found wanting, even if currency composition may be available from some national sources.
While the first chart at the top of the piece shows absolute totals and is useful in seeing changes in global reserve quantities – such as the quarterly declines in 2022 – a proportional view is more helpful from a de-dollarization perspective. The interactive chart below shows that from a peak in this sample of over 72% in the early 2000s, for the proportion of reserves disclosed2The IMF designates these as “allocated” official FX reserves. by currency to the IMF, the USD slumped to a trough of just under 59% in Q4 2021, a 13-percentage points decline.
So which currencies did the USD lose ground to? China is indeed part of the story, with CNY having risen from nil to…a peak of merely 2.8%. That leaves 10 of the 13 ppts to account for. The euro also contributes to the USD decline but only modestly because, despite its share having risen in the middle years of the sample, in 2023 it only stands at ~1-2 ppts above where it started 24 years ago. The yen is certainly not the culprit, as it has actually lost some ground as well, albeit only 0.5-1 ppt depending on chosen measurement times.
It is in fact other currencies that explain most of the USD’s loss of share in official reserves, especially sterling and the Australian and Canadian dollars. GBP accounts for a nearly 2 ppts rise from 1999 to 2023. AUD and CAD are slightly harder to measure over the full sample period because the IMF clearly recategorized them both in 2012, moving them from the “Other” currency category into their own standalone categories, presumably because of their growing shares. In 1999, the “Other” category stood at some 1.6%, while summing “Other” with CAD and AUD in 2023 yields a figure of 7.7%, pointing to a 6 ppts difference, of which only 1.7 ppts came from currencies other than CAD and AUD. To simplify, CAD and AUD combined for a 4.3 ppts bite into the USD share.
The reality of other advanced economy currencies displacing the USD as a reserve currency stands in marked contrast to prevailing ideological narratives that the USD decline is related mostly or solely to the rise of emerging market currencies such as CNY. While there is ample evidence for central banks repatriating gold in the wake of U.S. sanctions against Russia and freezing of its reserve USD assets following Moscow’s invasion of Ukraine in February 2022,3https://www.reuters.com/business/finance/countries-repatriating-gold-wake-sanctions-against-russia-study-2023-07-10/ there has been no associated decline of the USD’s reserves standing. In fact, since the war began last year, the USD slice has risen from just under 59% to over 60% this year, while the yuan’s has fallen by 0.2 ppts.
Trade Invoicing
In 2020, then-IMF Chief Economist Gita Gopinath and colleagues published an IMF working paper4https://www.imf.org/en/Publications/WP/Issues/2020/07/17/Patterns-in-Invoicing-Currency-in-Global-Trade-49574 on the invoicing of international trade by currency, building on Gopinath’s prior extensive academic work in this area.
Here too there is broad-based evidence of a declining role of the USD. The greenback’s decline is most evident when comparing the early 2000s to the present day, though Gopinath, Boz, et al.’s dataset has less country coverage that far back. For this reason, the most recent year of available data – 2019 – is compared to 2010, to provide a snapshot of currency invoicing of exports and imports trends over the decade.
The two charts below show overall lower use of the USD in export and import invoicing in 2019 versus 2010 in most countries, although there are outliers on either side of the diagonal change demarcation line, e.g. Russia and Cyprus. As with official reserves, it appears that another advanced economy currency – the euro in this case – could be responsible for taking away USD market share, as many of the country declines are either in the Euro area or in Europe.
The situation is different for EUR, which saw its trade invoicing presence grow in most of the sample countries in the 2010s. This confirms the suspicions above that EUR was displacing the USD in the euro area and Europe but goes further by demonstrating EUR’s growing role outside Europe as well, e.g. Israel, Chile, Indonesia, Thailand.
These last two charts present the change in invoicing in currencies that are neither the USD nor the EUR and appears to include a country’s home currency, at least for imports.5The metadata in the dataset leaves room for ambiguity on this nuance. Here the picture is mixed, with a relatively even balance between increases and decreases across countries over the period. Yet some of the outliers provide compelling avenues for further research. For instance, Tunisia’s apparent switch from invoicing imports in its home currency in 2010 – prior to the Arab Spring, which had its tragically self-immolating spark in Tunis in 2011 – to USD by 2019 raises questions in need of answers, as do the cases of Russia, Ukraine, Cyprus, and Mongolia.
1
The “unallocated” reserves in grey are merely the USD value of official FX reserve assets for which the IMF has no currency decomposition.
2
The IMF designates these as “allocated” official FX reserves.
Introducing a sovereignstress tracker covering 100+ countries, based on the IMF’s Debt Sustainability Framework for Market-Access Countries.The model used in this analysis suggests that sovereign debt strains are lower in 2023 than they were in either 2022 or 2020 for this group of countries. MACs comprise all economies that are lower-middle income and above, including many emerging economies and all advanced economies.
Market-Access Countries
In 2021, the IMF released its new Debt Sustainability Analysis framework for Market-Access Countries, in line with its differentiation between MACs and low-income countries. The reasons given for distinguishing between these two groups is that MACs generally have significant access to international capital markets, whereas LICs rely on concessional resources to fulfill their external financing needs.
As such, the Fund has a separate approach to debt sustainability analysis for LICs, which is beyond the scope of this tracker. The strict definition is that countries eligible for the IMF’s Poverty Reduction and Growth Trust, which is an interest-free concessional financing tool, are treated as LICs, whereas the rest are considered MACs.
Geographic coverage
Overall, 140+ countries and territories were included in this analysis, but results were only obtained for 112,1Angola, Albania, United Arab Emirates, Argentina, Armenia, Antigua & Barbuda, Australia, Austria, Azerbaijan, Belgium, Bulgaria, Bahrain, Bahamas, Bosnia & Herzegovina, Belarus, Belize, Bolivia, Brazil, Barbados, Brunei, Botswana, Canada, Switzerland, Chile, China, Colombia, Costa Rica, Cyprus, Czechia, Germany, Denmark, Dominican Republic, Algeria, Ecuador, Egypt, Spain, Estonia, Finland, Fiji, France, Gabon, United Kingdom, Georgia, Equatorial Guinea, Greece, Guatemala, Hong Kong SAR, China, Croatia, Hungary, Indonesia, India, Ireland, Iran, Iraq, Iceland, Israel, Italy, Jamaica, Jordan, Japan, Kazakhstan, St. Kitts & Nevis, South Korea, Kuwait, Lebanon, Sri Lanka, Lithuania, Luxembourg, Latvia, Morocco, Mexico, North Macedonia, Malta, Mongolia, Mauritius, Malaysia, Namibia, Nigeria, Netherlands, Norway, New Zealand, Oman, Pakistan, Panama, Peru, Philippines, Poland, Portugal, Paraguay, Qatar, Romania, Russia, Saudi Arabia, Singapore, El Salvador, Suriname, Slovakia, Slovenia, Sweden, Eswatini, Seychelles, Syria, Thailand, Trinidad & Tobago, Tunisia, Turkey, Ukraine, Uruguay, United States, Venezuela, Vietnam, South Africa given insufficient data availability in around 30 cases. The analysis is based on a multivariate model, meaning that a missing data point for a single variable across all years makes it impossible to derive a final measurement for the country in question, resulting in exclusion.
The calculated probabilities of sovereign stress for the 112 countries do not cover all years, unfortunately. For instance, there are only results for 43 countries in 2023, given less availability of annual data and/or forecasts for the current year. Data coverage will be improved in future iterations of the tracker.
All countries included are either high, upper middle, or lower middle income countries, with few exceptions, such as Syria, which the World Bank reclassified as a LIC in 2018. There is also some debate as to whether Venezuela constitutes an UMIC or a LMIC, though it is treated as a LMIC here.
Model
The IMF claims that extensive testing demonstrates that its new MAC DSF is much better at accurately predicting sovereign debt distress. Predictive analysis is based on a multivariate logit model developed by Fund staff. Passing the required data into the model provides a probability that a sovereign borrower experiences debt stress:
Multivariate logit model specification
Regressor
Coefficient
Institutional quality
-1.073 ***
Stress History
0.514 ***
Current account balance/GDP
-0.024 **
REER (3-year change)
0.013 **
Credit/GDP gap (t -1)
0.086 ***
Δ Public debt/GDP
0.052 ***
Public debt/revenue
0.002 ***
FX public debt/GDP
0.024 ***
International reserves/GDP
-0.034 ***
ΔVIX
0.015 ***
*** / ** indicate statistical significance at the 1 percent / 5 percent levels
Results
In addition to the dotplot chart above, a further way to view the broad results from this analysis of 112 countries is as a boxplot, presented below. I fully acknowledge that this data is unbalanced, given the limited number of data points in 2023 and also in the early 2000s – as can be seen in the first chart above – compared to better country representation in the middle years of the sample. More charts are presented in the next section below in order to address this issue.
As can be seen in the data, in 2023 there appears to be less systemic sovereign stress among MACs as compared to previous years, particularly 2022 and 2020. Future posts will provide granular details and heatmaps at the country level.
The first web application as part of Sovereign Vibe’s DataHub disaggregates the World Bank’s International Debt Statistics’ outstanding debt stock data for 68 low-income countries by creditors type: multilateral, bilateral, and private. Further decompositions are provided for the concessional and non-concessional components of multilateral and bilateral lending, and also for private credit by bondholders, banks, and other private lenders.
This first update to the “External Sovereign Debt: DSSI Countries” dashboard adds some helpful new features for users seeking to quickly view and analyze external public and publicly-guaranteed debt stock data. To begin with, the updated app now covers data extending back to 1970, the earliest year available in the WB database. The pilot version only extended coverage back to 2000, given the heavier data burden and the uncertainties around this initial attempt.
Secondly, this new version of the dashboard allows users to view the IDS debt stock data in US dollars, as previously, but now also includes an option to view the readings as a percentage of GDP.
Third, a new category has been created to aggregate all borrowing countries. When opening the application, the “Sovereign borrower(s)” category defaults to “All DSSI,” while the “Creditor(s)” menu defaults to “World” so that users can get a high-level view of all lending (i.e. from the entire world) for all these countries (i.e. all DSSI) at once. This view is presented in the previous post, “Cure worse than the disease,” but was previously unavailable through the dashboard.
Finally, the update enables users to select multiple creditors when viewing a country’s external debt stock. Over two hundred creditor locations and types are specified in the creditor menu, so, for example, a user could choose to look at how much China, France, bondholders, and the World Bank-IBRD have lent to Zambia up until the latest data reading.
Further updates to this dashboard could include allowing users to select multiple borrowers at once. While in practice providing this is currently possible for viewing the debt stock data in US dollars, some back-end work is needed to make aggregating borrowers usable in percentage of GDP. Next steps will include:
Enabling users to select multiple borrowers at once
Expanding coverage to the broader emerging markets universe
Moving beyond external debt stocks and towards associated external sovereign debt flows
Progressing from descriptive data towards analytical outputs
What are your thoughts on this basic dashboard? How do you think it could be improved, and what features would you like to see? Feel free to submit comments in the section below or via the website’s Contact page.
All suggestions for avenues of further research are welcome as Sovereign Vibe progresses from its current pilot phase towards deeper analysis of challenges facing the sovereign debt landscape and the emerging markets complex.
A high-level snapshot of the structure of outstanding external sovereign debt burdens for low-income countries and reflections on the G20’s pandemic-era DSSI policy and its successor, the Common Framework for Debt Treatments beyond the DSSI.
LIC debt burdens
During last month’s IMF-World Bank Spring Meetings, I listened to a discussion on debt crisis resolution between civil society activists and IMF staff. The vastly different frames of reference, language, and motivations on low-income country (LIC) debt playing out were captivating. It is precisely this clash of worlds that the sovereign debt space needs more of as stakeholders search for the best policies to foster inclusive growth and eradicate poverty.
Civil society organizations (CSOs) have a long-standing and well-known position on LIC external sovereign debt: in a nutshell, just cancel it. Indeed, rising external debt burdens in LICs in recent years have fueled more calls for debt forgiveness. Looking at the DSSI-eligible LICs, the rapid increase in external sovereign debt in the 2010s does give pause for concern. While the overall external public and publicly-guaranteed (PPG) debt load hovered around $200 billion throughout the 1990s and 2000s, it surpassed the $600 billion mark in 2021.
Contrast the CSO perspective with IMF staff assertions that external sovereign debt strains in LICs are less severe today than in the past. Needless to say, the CSO representatives were essentially unanimous in taking issue with this position, labeling it as provocative. IMF staff presented a chart resembling the one below, highlighting how external public debt-to-GDP was much heavier previously. In fact, the most acute strains occurred in the mid-1990s. These declined until the late 2000s, partly thanks to the Heavily-Indebted Poor Countries initiative (HIPC) from 1996 and the Multilateral Debt Relief Initiative (MDRI) from 2005.
While today’s external PPG debt ratios are less alarming, the growth of domestic capital markets in many LICs suggests that overall (i.e. domestic plus external) sovereign debt-to-GDP could be too high. Moreover, LIC sovereigns have borrowed more on non-concessional terms over the past decade, pointing to greater interest payment pressures.
The new data above will augment the DSSI dashboard in the Sovereign Vibe DataHub, where users can filter data by borrower and creditor.
Introducing the Sovereign Vibe project in this first blog post, for your reading pleasure.
What is Sovereign Vibe?
Sovereign Vibe is a data-focused blog designed to provide actionable insights on emerging markets sovereign debt, global macroeconomics, and capital markets. And by “emerging markets” and “global macroeconomics,” what I really mean is that this blog will cover emerging, frontier, and developing economies, or at least to the extent my one-person bandwidth permits.
My preferred catch-all term for this is one that the International Monetary Fund also uses: emerging and developing economies (EMDEs). Since EMDEs are greatly affected by what happens in advanced economies (AEs), I’ll also be exploring some relevant developments in the US and other wealthy countries whenever I deem useful.
This is a project that I have wanted to do for a long time, for at least two reasons. The first is that what should be easily-accessible sovereign debt data often requires some wrangling before useful information can be extracted from it. The second is that narratives on EMDEs are too often siloed, with limited cross-referencing among the commentariat comprising development experts, policymakers, investors, bankers, lawyers, journalists, activists, and geopolitical strategists. Generating fresh insights from data and bringing diffuse analysis together should provide some big-picture value to the reader. If you agree, please consider subscribing below for free newsletter email updates.
What do you mean by data?
Well, here’s an example. The chart below shows the outstanding external public and publicly-guaranteed debt stock of 68 Low-Income Countries (LICs), a subset of the EMDEs. This data comes from the World Bank’s well-known International Debt Statistics database and covers the countries eligible for the G20’s Debt Service Suspension Initiative (DSSI), which made it possible for these countries to delay servicing some of their external public debt during the pandemic in 2020 and 2021. In fact, 73 countries were eligible, but data is unavailable for five of them. I’ll cover the DSSI and its successor policy, the so-called Common Framework in more detail in future posts.
For now, as you can see, these poor countries amassed a lot of external sovereign debt in the 2010s, with the greatest increases coming in the form of private credit and non-concessional official lending. This latter type is of both the multilateral and bilateral variety, with “bilateral non-concessional” overlapping to a large extent with Chinese loans. Private and non-concessional is a pretty expensive mix for these borrowers, given the interest rates on those types of debt…but more on that some other time.
To get a clear breakdown of this data, check out the Sovereign Vibe DataHub, which features as its inaugural dashboard the decomposition of DSSI-eligible countries’ external public debt stock by borrowing country, creditor country, and creditor type.
