Central banks are diversifying their FX reserves to hedge against economic instability. This means reducing the share of the dollar and adopting smaller currencies.
Countries are adopting smaller currencies like the Australian dollar and the Canadian dollar.
According to the International Monetary Fund (IMF)’s Currency Composition of Official Foreign Exchange Reserves data, the dollar’s share of global foreign exchange reserves fell below 59 percent in the final quarter of 2024 extending a two-decade decline.
Here are the currencies that make up the FX reserves of 149 reporting economies making up as much as 93 percent of global FX reserves.
US Dollar
Over 80 percent of global foreign exchange transactions are settled in dollars, and 70 percent of foreign currency debt is issued in dollars, 3 times the amount issued in euros and 30 times that of the Chinese Yuan.
Also, 58 percent of the global FX reserves are in dollars making $6.67 trillion and 47 percent of cross-border transactions are conducted in dollars via the SWIFT global payment network.
Euro
The Euro ranks second in terms of the volume of global FX reserves. Being the common currency of the European Union, the euro makes up $2.265 trillion of the global FX reserves.
The euro’s share of global FX reserves declined by 0.5 percent in the second quarter of 2024, from $2.25 trillion in the year’s first quarter.
Read also: CBN yet to settle $2.4bn FX forward contract, says MAN DG
Japanese Yen
The Japanese yen makes up about 6 percent of the global FX reserves, with about $641.07 billion in this year’s second quarter.
The yen is the third most traded currency globally, accounting for a daily average volume of $554 billion.
Pounds Sterling
The pound sterling is the fourth largest reserve currency accounting for 5 percent of global FX reserves. It accounts for $546.92 billion. As the fourth most traded currency globally, it averages a daily volume of nearly $422 billion.
Canadian Dollar
The Canadian dollar makes up 3 percent of the global FX reserves with $306.85 billion in Q2 2024.
While countries have been cutting back on the US dollar, their appetite for the Canadian dollar has grown. Its share of global FX reserves increased from $295.64 billion to $306.85 billion in the second quarter of 2024.
Read also: Dollar share of global FX reserves drops by 1.46% in Q2
Australian Dollar
The Australian dollar makes up 2 percent of the global FX reserves. 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.
Chinese Renminbi
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 renminbi makes up $245.17 billion of the global FX reserves in the second quarter of 2024, making about 2 percent of the total.
However, the renminbi’s share of global FX reserves has declined since 2022 owing to exchange rate depreciation.
Swiss Francs
The Swiss Francs make up 0.2 percent of the global FX reserves with just $22.43 billion. It is also the seventh most traded globally, accounting for a daily average volume of $164 billion.
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