Dollar Dominance and the Rise of Nontraditional Reserve Currencies

cryptonews.com:

Serkan Arslanalpis Deputy Division Chief in the Balance of Payments Division of the International Monetary Fund (IMF)’s Statistics Department; Barry Eichengreen, George C. Pardee and Helen N. Pardee Professor of Economics and Political Science, University of California;Chima Simpson-Bell is an Economist in the IMF’s African Department._______

The US dollar has long played an outsized role in global markets. It continues to do so even as the American economy has been producing a shrinking share of global output over the last two decades.

But although the currency’s presence in global trade, international debt, and non-bank borrowing still far outstrips the US share of trade, bond issuance, and international borrowing and lending, central banks aren’t holding the greenback in their reserves to the extent that they once did.

As the Chart of the Week shows, the dollar’s share of global foreign-exchange reserves fell below 59 percent in the final quarter of last year, extending a two-decade decline, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves data.

In an example of the broader shift in the composition of foreign exchange reserves, the Bank of Israel recently unveiled a new strategy for its more than USD 200bn of reserves. Beginning this year, it will reduce the share of US dollars and increase the portfolio’s allocations to the Australian dollar, Canadian dollar, Chinese renminbi, and Japanese yen.

As we document in a recent IMF working paper, the reduced role of the US dollar hasn’t been matched by increases in the shares of the other traditional reserve currencies: the euro, yen, and pound. Moreover, while there has been some increase in the share of reserves held in renminbi, this accounts