US Dollar Share of Global Foreign Exchange Reserves Drops to 25-Year Low

IMF Blog, May 5, 2021

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The share of US dollar reserves held by central banks fell to 59 percent—its lowest level in 25 years—during the fourth quarter of 2020, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey.
Since the euro was launched in 1999, the share of US dollar assets in central bank reserves dropped by 12 percentage points—from 71 to 59 percent.
The share of the euro has fluctuated around 20 percent.
The share of other currencies, including the Australian dollar, Canadian dollar, and Chinese renminbi, climbed to 9 percent in the fourth quarter of 2020.

Exchange rate fluctuations can have a major impact on the currency composition of central bank reserve portfolios.
During periods of US dollar weakness against major currencies, the US dollar’s share of global reserves generally declines since the US dollar value of reserves denominated in other currencies increases (and vice versa in times of US dollar strength).
Changes in the relative values of different government securities can also have an impact, though this effect tends to be smaller since major currency bond yields usually move together.
US dollar exchange rates can be influenced by diverging economic paths between the United States and other economies, differences in monetary and fiscal policies, and foreign exchange sales and purchases by central banks.

Variations in the US dollar’s share of global reserves since 1999: about 80 percent of the short-term (quarterly) variance can be explained by exchange rate fluctuations.
The remaining 20 percent of the short-term variance can be explained mainly by active buying and selling decisions of central banks to support their own currencies.

Once the impact of exchange rate movements is accounted for, the US dollar’s share in reserves held broadly steady during the past year (2020).
Taking a longer view, the fact that the value of the US dollar has been broadly unchanged over the past two decades while the US dollar’s share of global reserves has declined indicates that central banks have been shifting gradually away from the US dollar.
Any changes to the US dollar’s status as the dominant international reserve currency are likely to emerge in the long run rather than abruptly.

Some expect the US dollar’s share of global reserves will continue to fall as emerging market and developing economy central banks seek further diversification of the currency composition of their reserves.
A few countries, such as Russia, have already announced their intention to diversify away from the US dollar.
If shifts in central bank reserves are large enough, they can affect currency and bond markets.

IMF Blog — May 5, 2021