US Dollar Share Of Global Forex Reserves Drops To 25-Year Low

The share of United States dollar reserves held by central banks
across the world fell to 59 per cent—its lowest level in 25 years,
during the fourth quarter of 2020.

This is according to the just-released International Monetary
Fund’s (IMF) Currency Composition of Official Foreign Exchange
Reserves (COFER) survey.

Some analysts claimed this partly reflected the declining role
of the US dollar in the global economy, in the face of competition
from other currencies used by central banks for international
transactions.
If the shifts in central bank reserves were large enough, they
could affect currency and bond markets.

The dollar acts as the primary reserve currency for the global
economy, and foreign exchange reserves in central banks around the
world account for the bulk of the US dollar.

According to the survey, the share of US dollar assets in
central bank reserves dropped by 12 percentage points—from 71 to 59
per cent—since the euro was launched in 1999, although with notable
fluctuations in-between.

It noted that the share of the euro has fluctuated around 20 per
cent, while the share of other currencies including the Australian
dollar, Canadian dollar, and Chinese renminbi climbed to 9 per cent
in the fourth quarter.

The value of the US dollar has been broadly unchanged, while the
US dollar’s share of global reserves has declined, indicating that
central banks have indeed been shifting gradually away from the US
dollar.

Some expected that the US dollar share of global reserves would
continue to fall as emerging market and developing economy central
banks sought further diversification of the currency composition of
their reserves.

A few countries, such as Russia, have already announced their
intention to do so.

But despite major structural shifts in the international
monetary system over the past six decades, the US dollar has
remained the dominant international reserve currency. Any changes
to the US dollar’s status are likely to emerge in the long run, the
survey noted.

The Central Bank of Nigeria (CBN) had on April 27, 2018, on
behalf of the Federal Republic of Nigeria signed a Currency Swap
Agreement with the People’s Bank of China (PBoC) on behalf of the
People’s Republic of China.

The swap deal, an agreement with a three-year tenor, allows both
the CBN and PBoC to swap a maximum amount of 15 billion
Renminbi/Chinese Yuan (CNY 15 billion) for N720 billion.

This amount is equivalent to $2.5 billion using the prevailing
exchange rate of N305:$1 at the time.

The share of United States dollar reserves held by central banks
across the world fell to 59 per cent—its lowest level in 25 years,
during the fourth quarter of 2020.

This is according to the just-released International Monetary
Fund’s (IMF) Currency Composition of Official Foreign Exchange
Reserves (COFER) survey.

Some analysts claimed this partly reflected the declining role
of the US dollar in the global economy, in the face of competition
from other currencies used by central banks for international
transactions.
If the shifts in central bank reserves were large enough, they
could affect currency and bond markets.

The dollar acts as the primary reserve currency for the global
economy, and foreign exchange reserves in central banks around the
world account for the bulk of the US dollar.

According to the survey, the share of US dollar assets in
central bank reserves dropped by 12 percentage points—from 71 to 59
per cent—since the euro was launched in 1999, although with notable
fluctuations in-between.

It noted that the share of the euro has fluctuated around 20 per
cent, while the share of other currencies including the Australian
dollar, Canadian dollar, and Chinese renminbi climbed to 9 per cent
in the fourth quarter.

The value of the US dollar has been broadly unchanged, while the
US dollar’s share of global reserves has declined, indicating that
central banks have indeed been shifting gradually away from the US
dollar.

Some expected that the US dollar share of global reserves would
continue to fall as emerging market and developing economy central
banks sought further diversification of the currency composition of
their reserves.

A few countries, such as Russia, have already announced their
intention to do so.

But despite major structural shifts in the international
monetary system over the past six decades, the US dollar has
remained the dominant international reserve currency. Any changes
to the US dollar’s status are likely to emerge in the long run, the
survey noted.

The Central Bank of Nigeria (CBN) had on April 27, 2018, on
behalf of the Federal Republic of Nigeria signed a Currency Swap
Agreement with the People’s Bank of China (PBoC) on behalf of the
People’s Republic of China.

The swap deal, an agreement with a three-year tenor, allows both
the CBN and PBoC to swap a maximum amount of 15 billion
Renminbi/Chinese Yuan (CNY 15 billion) for N720 billion.

This amount is equivalent to $2.5 billion using the prevailing
exchange rate of N305:$1 at the time.