The U.S. dollarâ€™s dominant position as the reserve currency of choice may be in peril, as its share of global currencies held in reserves continues to decline. International Monetary Fund (IMF) data shows, the dollarâ€™s share of reserves dropped from 66% in Q3 of 2014 to just above 60% in Q3 of 2020. This means the dollarâ€™s share has been dropping at a rate of about 1 percentage point per year.
Faltering Reserve Currencies
Meanwhile, as one report suggests, this latest figure represents the dominant currencyâ€™s lowest share in almost 8 years. Furthermore, the report also explains that â€œthe decline in the dollarâ€™s share (actually) began 20 years ago when the Euro assumed the place of the predecessor currencies that used to be in the basket of foreign exchange reserves.â€ According to the data, the year 1991 is the worst one for the dollar. In that year, the dollarâ€™s reported share of reserves dropped to 46%.
In the meantime, the Euro, which was â€œthe last effort by a single currency to dethrone the dollarâ€ as the number one reserve currency, has had its share stuck between 19.5% and 20.6% over the past six years. Similarly, Chinaâ€™s yuan renminbi (RMB) currency, which became an official reserve currency in October 2016, appears not to be making much headway. After the RMBâ€™s inclusion in the IMFâ€™s â€œbasket of currencies that back the Special Drawing Rights (SDRs)â€ the Asian countryâ€™s currency has only garnered a mere 2.13% share of reserves. China is the worldâ€™s second-largest economy.
The Yen Ascendancy
On the other hand, only the Japanese Yen appears to have gained after the proportion of the Asian countryâ€™ currency held in reserves rose from 3.5% in 2015 to 6% by the end of Q3 of 2020. This feat made â€œthe Yen the third-largest reserve currency.â€
In the meantime, the same report explains that while the dollarâ€™s status as the top global reserve currency continues to deteriorate, it would nonetheless â€œtake a decade for the dollarâ€™s share to drop to 50%, with other currencies picking up the slack.â€ In any case, this deterioration will only to start having an effect on the U.S. when the dollarâ€™s share â€œdrops (to) well below 50%.â€
Do you agree that the US dollarâ€™s dominance will continue to deteriorate? Tell us your thoughts in the comments section below.
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.