The dollar’s share of global foreign exchange (FX) reserves declined by 1.46 percent in the second quarter of 2024 compared to the first quarter of the year.
This was due to countries diversifying their foreign exchange reserves to hedge against economic instability, although the dollar still makes up 58 percent of the FX reserves share, according to the International Monetary Fund.
The dollar’s share of global FX reserves fell from $6.77 trillion to $6.675 trillion, while the share of Euro increased marginally to $2.265 trillion in Q2 2024 from $2.253 trillion.
According to the IMF, the decline in the dollar share of global FX reserves may not directly translate into an increase in the other four major currencies as a share of global FX reserves.
Instead, countries are adopting smaller currencies like the Australian dollar and the Canadian dollar.
The share of global FX reserves held in Australian dollars increased from $248.4 billion in Q1 2024 to $256.45 billion in the second quarter of 2024. Meanwhile, Canadian dollars also increased from $295.64 billion to $306.85 billion in the same period.
“These nontraditional reserve currencies are attractive to reserve managers because they provide diversification and relatively attractive yields, and because they have become increasingly easy to buy, sell and hold with the development of new digital financial technologies,” the IMF said.
Read also: Here are eight global FX reserve currencies
The Chinese renminbi which had gained in the third quarter of 2023, lost 6 percent in the second quarter of 2024, although the Chinese had been advancing policies for the renminbi’s internationalisation.
“The most recent data do not show a further increase in the renminbi’s currency share: some observers may suspect that depreciation of the renminbi exchange rate in recent quarters has disguised increases in renminbi reserve holdings. However, even adjusting for exchange rate changes confirms that the renminbi share of reserves has declined since 2022,” the IMF stated.
Beyond the renminbi’s depreciation, China’s economy is still $4 trillion smaller than that of the US.
A Bloomberg report shows that overthrowing the dollar may be harder than it was for the dollar to displace the pound.
“It took another half century, two world wars and a full-blown fiscal crisis in the UK for the greenback to dethrone the pound. Fast-forward to today and the obstacles to change are even greater. That’s because the world’s finances are knitted together more closely than they’ve ever been, and they’re engineered around the dollar.”
“Supplanting the dollar, then, might require not only an economic or other major calamity but also a wholesale change in the way financial transactions are executed,” it said.
Gita Gopinath, first managing deputy director, IMF, stated that a global system with multiple reserve currencies could have several benefits, including more safe assets and wider FX reserve diversification.
“However, the stability of such a system would be at risk without strong policy coordination among all reserve currency-issuing countries. This would not be possible if the world is divided along geopolitical lines,” she said in a speech.
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