IMF: The US dollar is 'silently eroding' amid the de-dollarization trend, what is the biggest 'risk' for the greenback?

Global central banks have reduced the US dollar share of their foreign exchange reserves over the past two decades. The US dollar still dominates foreign exchange reserves, but the proportion has dropped from 70% in 2000 to about 55% in the fourth quarter of 2023, according to the IMF.

Banks "gradually shifted" away from the dollar, the proportion of "non-traditional reserve currencies" increased. These include the Australian dollar, Canadian dollar, Chinese Yuan, Korean won, Singapore dollar and Nordic currencies.

The report was released in the context that the issue of de-dollarization is being hotly discussed.

As part of the sanctions, the West excluded Russia from the global financial system (SWIFT) after the Russia-Ukraine conflict broke out. Other countries are now concerned that they too could be excluded from the system.

Even so, analysts recently said there are still other concerns that could erode confidence in the greenback. Financial Times “American dysfunction” – political and financial – is the real threat to dollar dominance.

Jared Cohen, president of global affairs at Goldman Sachs, acknowledged there is a movement toward de-dollarization but the time to change the global financial system to be based on the U.S. dollar is still a long way off.

However, Mr. Cohen warned that the dollar's supremacy should not be taken for granted, developments in the US, could erode confidence in the greenback.