According to the IMF’s most recent data, the greenback’s share of official global reserves fell by 0.85% between July and September 2024, dropping to 57.4%.
This marks the dollar’s lowest share since 1995. The IMF did not provide data for earlier periods, but the decline in the dollar’s dominance has been a consistent trend for several quarters.
In a blog post from June 2024, the IMF pointed to a growing trend of diversification as countries look to reduce their reliance on the U.S dollar. The decline of the greenback is being matched by an increase in the use of other currencies, with notable gains for the Euro and the Japanese Yen.
For example, in the third quarter of 2024,
the Euro’s share of global reserves rose to 20.02%, up from 19.75% in the previous quarter.
Meanwhile, the Japanese Yen has seen consistent growth in its share of global investments over the past six quarters, reaching 5.82% in Q3.
In addition to these shifts, the Chinese Yuan, which had seen a decline in its share of global reserves for nine consecutive quarters, rebounded in the third quarter of 2024, rising to 2.17%. While still a small fraction of the global reserve pool, this signals that the Yuan may be gaining traction among central banks looking to diversify their holdings.
Despite the ongoing shift, the U.S dollar remains the world’s pre-eminent reserve currency, accounting for over half of global forex reserves. The Euro remains the second most widely held currency.
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However, the greenback’s continued dominance is facing increasing challenges, fueled in part by concerns over rising U.S debt and the growing use of economic sanctions. Washington’s aggressive use of sanctions – particularly those targeting Russia – has raised questions among other nations about the stability and security of holding dollar-denominated assets.
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In the wake of the Ukraine conflict, the U.S imposed a series of sanctions on Russia, including cutting off its central bank from dollar transactions and freezing Russian assets abroad. These moves have led some countries to reconsider their dependence on the dollar.
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— BitKE (@BitcoinKE) December 4, 2024
As Foreign Affairs magazine noted in June 2024, the sanctions have prompted central banks worldwide to question whether their own dollar reserves could be frozen or blocked should tensions rise with the U.S.
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Russia, along with its BRICS partners, has already begun to reduce its reliance on the dollar. According to data from September 2024, Russia and its BRICS counterparts now use their own national currencies for 65% of mutual trade settlements. At the BRICS summit in October 2024, Russian President Vladimir Putin warned that the weaponization of the dollar through sanctions was a ‘big mistake’ that would drive countries to seek alternatives.
As the trend of de-dollarization accelerates, many countries are exploring ways to reduce their exposure to the U.S dollar, driven by concerns over:
Geopolitical risk
Rising U.S debt, and
The ongoing uncertainty in the global economy
The shift may signal a gradual but significant transformation in the global financial landscape, with lasting implications for the future of the U.S dollar’s dominance.
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