Lucas Leiroz, research fellow in international law at the Federal University of Rio de Janeiro.

The decline of the dollar as a world currency has set a new record recently. In October, the euro replaced the dollar as the preferred currency for international payments for the first time in seven years. In the same month, the growth of the pound sterling and the Japanese yen as alternative models of global payment was impressive, indicating even more rejection of the American currency, until now considered absolutely hegemonic.

About 37.82% of the money transfers that the Society for Worldwide Interbank Financial Telecommunications (Swift) reported last month were in euros, which means that there has been an increase of more than six percentage points since the end of last year - meanwhile, the use of the dollar has fallen by about from 4, 6 percentage points since last December, reaching 37.64% of transactions in the month of October.

Several factors influence the recent phenomenon of the dollar’s reduction. The fall in the use of the American currency occurs in the midst of events such as the world economic crisis generated by the pandemic of the new coronavirus, the problematic American elections and the trade war between Washington and Beijing. All of these facts contribute to a greater instability in the dollar system, which leads to its rejection. What worries the supporters of such a system, however, is the fact that none of these factors has a predicted solution in the near future, indicating a possible increase in the dollar's decline in the coming months or years.

Since its peak in March, the dollar has weakened more than 11%, according to data collected by Bloomberg. Experts believe that its valuation may decline even further in the coming months if vaccines against the new coronavirus become widely available by 2021, considering that investors may switch from American assets to international assets, if they see more economic movements in the rest of the world with the distribution of vaccines. Thus, the advances in vaccine research and the good results of tests tend to further hinder dollar negotiations and favor transactions in alternative currencies, as they favor a betting scenario and diminish an exaggerated search for financial security.

In parallel, the yuan has become a very attractive asset for global investors looking for stability and profit in recent times, as government bonds denominated in US dollars, yen and euros offer little, if not negative, returns when considering interest rates or exchange. Chinese five-year government bonds continue to offer an annual yield of more than 3%, while US government debt with the same maturity offers only 0.4%. In addition, China's rapid economic recovery after the coronavirus outbreak helped the yuan to reach a great advantage in relation to the US dollar. Experts believe that by the end of 2020, more than 40% of China's outstanding foreign debt will be denominated in yuan.

It is important to emphasize that at the present time, the dollar remains the main financing currency in the world, with about half of all international loans and debt securities in dollars, according to a report published by the Bank for International Settlements in July. 85% of all foreign exchange transactions are currently carried out in dollars. Therefore, the current figures, while impressive, do not indicate an abrupt decline or an "end of the dollar era" for the coming months. What we are witnessing is the beginning of a long process of decline, which may or may not be reversed according to the progress of the factors that led to such decrease.

In fact, the international monetary system, controlled by the dollar for decades, is undergoing structural and profound changes. The yuan's rise in international trade and investment flows indicates that the Chinese currency already has “global currency characteristics”, having the necessary conditions to dispute the dollar's hegemony. But the coming scenario does not seem to be that of a new hegemonic currency.

Despite its growth, the yuan was overtaken in international transactions by the Canadian dollar in October, for example. And it was the euro that reached the highest of the negotiations in the same month. Also, several other currencies have grown in business recently, such as the Japanese and the British. In the end, what we are witnessing is not the replacement of an American monetary hegemony by a Chinese one, but a scenario of greater monetary multipolarity, with more currencies competing for positions in global business, without the emergence of a new universal standard. The dollar legacy is still a long way from being overcome and its hegemony will remain for some time, but as its fall progresses, more currencies gain space in a more diversified global economy, with more alternatives to investors.