United States one dollar bills are placed in wrapping bands during production at the Bureau of Engraving and Printing in Washington November 14, 2014. REUTERS/Gary Cameron/File Photo

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ORLANDO, Fla., April 6 (Reuters) – The U.S. dollar’s share of global foreign exchange reserves continues to slowly decline – but reserve reserves are just one measure of its dominance over global finance, and there is no There’s no realistic scenario where this goes off the rails anytime soon.

Central banks and private companies need their rainy day funds to be in easily accessible liquid assets, in widely accepted and plentiful currencies, and in jurisdictions with an internationally recognized rule of law.

The dollar meets all of these criteria. No other currency comes close, although the share of central bank reserves and global trade flows is increasingly spread across a wider range of currencies.

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The latest reduction in central bank reserves by the International Monetary Fund shows that the dollar’s slice of the dollar pie at the end of last year – before Russia invaded Ukraine and froze foreign exchange reserves of Moscow – was 58.8%.

That’s down from 59.2% in the previous quarter and the lowest since comparable data was first tracked in 1999/2000. This is a long-term trend – the dollar’s share of known or “allocated” reserves was over 70% in 2002.

Data from the Bank for International Settlements shows that the dollar was bought or sold in around 88% of global foreign exchange transactions in 2019. This has remained fairly stable over the past 20 years.

A US Federal Reserve document in October showed that about 60% of international and foreign currency liabilities and assets – mostly claims and loans, respectively – are denominated in dollars. This share has remained fairly stable since 2000.

Regarding trade, around 40% of global goods transactions are invoiced in dollars. Global trade hit a record high of $28.5 trillion in 2021, according to the United Nations Conference on Trade and Development.


The period 2000-2020 was marked by the rise of China as the world’s economic superpower, the increase in demand for dollar reserves from Asia after the 1997 crisis and an explosion of globalization and flows cross-border capital and trade.

These forces will be nowhere near as strong over the next 20 years, so the demand for dollars will decline, albeit slowly and at the margin – but so will the demand for all other reserve currencies. And in the relative world of currencies, that doesn’t mean the greenback will be a loser.

“You always need an alternative. Remember it took two world wars and the loss of the Empire for sterling to lose its status as the world’s premier reserve currency,” said Paul Donovan , Chief Economist at UBS Global Wealth Management.


Debate over the dollar’s future reserve status has intensified, with both sides largely represented by two leading academics – University of California, Berkeley, Professor Barry Eichengreen and Professor Adam Tooze of the University of Columbia.

Eichengreen and his colleagues argue that the single status of the dollar will gradually diminish as a more multipolar world takes shape. Central bank reserve managers have been undertaking “active portfolio diversification” into “non-traditional” currencies for years, they said in an IMF working paper last month.

Tooze does not dispute this, but argues that many of these currencies – such as the Canadian and Australian dollars – are “an integral part of the extensive financial security system of the United States”, protected and reinforced by dollar swap lines between their central banks and the Fed.

If the United States were in direct economic or military conflict with Russia or China, it is clear whose side most of these countries would be on.

The only two credible long-term rivals to the dollar for official reserves or the use of “vehicle currency” – invoicing in a currency that is neither the importer’s nor the exporter’s – are the yuan chinese and euro.

But there are myriad reasons why it will be years before they are considered safe, liquid and accessible like the dollar.

The euro lacks high-quality assets that central banks can use as a store of value, there are still no eurozone-wide government-backed assets and some international investors may be put off by the internal politics of a 19 bloc country.

In the case of China, it could take decades – the yuan is not fully convertible overseas and it is highly doubtful that Beijing would welcome the currency appreciation that would likely follow.

Joey Politano, an analyst at the US Bureau of Labor Statistics and author of a personal economics blog, simply states that the dollar’s reserve currency status is so strong “it’s nearly unassailable.” No other country has the “appropriate mix of deep capital markets, clear rule of law, massive economic size and technological dynamism”.

Associated columns:

– Russia’s central bank freeze could accelerate the “peak” of global foreign exchange reserves: Mike Dolan (Reuters, March 2) read more

— China may balk at pissed-off reserves chasing yuan: Mike Dolan (Reuters, March 18) read more

(Views expressed here are those of the author, columnist for Reuters)

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By Jamie McGeever; Editing by Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.

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