July 2, 2022
  • July 2, 2022
  • Home
  • Central Banks
  • Share of US dollar in global central banks’ foreign reserves falls to lowest level in 25 years

Share of US dollar in global central banks’ foreign reserves falls to lowest level in 25 years

By on May 6, 2021 0

The share of U.S. dollar reserves held by central banks around the world hit a 25-year low in the fourth quarter of 2020, according to the International Monetary Fund.

U.S. dollar assets in central bank reserves fell to 59% from 60.5% in the third quarter of 2020, while the euro’s share is around 20%. The share of other currencies, including the Australian dollar, Canadian dollar and Chinese renminbi, climbed to 9% in the fourth quarter, IMF economists Serkan Arslanalp and Chima Simpson-Bell said in a statement. blog post Wednesday.

“This in part reflects the declining role of the US dollar in the global economy in the face of competition from other currencies used by central banks for international transactions,” they said, citing the fund. Monetary composition of official foreign exchange reserves investigation.

This in part reflects the declining role of the US dollar in the global economy, in the face of competition from other currencies used by central banks for international transactions.

IMF blog post

If changes in central bank reserves are large enough, they can affect the currency and bond markets, they added.

Governments have injected more than $ 16 trillion in fiscal stimulus into the global economy since the outbreak of the Covid-19 pandemic. The stimulus was supported by around $ 9 billion in monetary measures from central banks as they tried to put a floor in a global economy that suffered its worst recession since the 1930s.

Central banks also use gold reserves as a store of value in times of volatility. Purchases of gold by central banks slowed sharply from 59% in 2020 to 273 tonnes, the World Gold Council said in its Gold demand trends report in January of this year. However, official gold reserves increased by 44.8 tonnes in the last quarter of last year.

“Fluctuations in exchange rates can have a major impact on the currency composition of central bank reserve portfolios. Changes in the relative values ​​of different government securities can also have an impact, although this effect tends to be smaller since the major yields of foreign currency bonds generally move together, ”said Messrs. Arslanalp and Simpson-Bell.

US dollar exchange rates can be influenced by several factors, including divergent economic trajectories between the United States and other economies, differences in monetary and fiscal policies, and the sales and purchases of currencies by banks. power plants, they added.

The greenback’s share in global reserves will continue to decline as central banks in emerging markets and developing economies seek to further diversify the monetary composition of their reserves, according to the Washington-based lender. He cited the example of Russia, which has already announced its intention to diversify the composition of its foreign exchange reserves.

Despite major structural changes in the international monetary system over the past six decades, the IMF has said it expects the US dollar “to remain the dominant international reserve currency.”

The dollar’s position as the world’s reserve currency was officially established in 1944 at the Bretton Woods conference, when 44 countries agreed to create the IMF and the World Bank.