De-Dollarization Accelerating as Central Banks Dumping the US Dollar
The dollar hasn't lost its king status but its influence is surely wearing off. De-dollarization has already been in action for quite some time now as the global geopolitical space is divided into two camps, one who supports US currency as a global reserve tool and other ones are those that have turned their backs on the greenback.
Countries like China, Russia, Iran, India, and Turkey among others have taken steps towards ending the US dollar monopoly.
Now the dollar’s share in global central bank reserve is also taking a hit as it slumped to the lowest level since 2013 while Chinese yuan share has risen significantly.
According to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) for Q4 2018 report, the US currency’s share went down from 61.9% to 61.7% in the fourth quarter, marking the tenth decline in the past 12 quarters. Meanwhile, euro, yen, and yuan each gained the share in allocated reserves.
Chinese Yuan & Japanese Yen Reserves Rising
While USD reserve is on the decline, reserve managers continue to add EUR reserves that have increased by 0.2% this quarter. Despite the growing political and growth concerns, reserve managers are offsetting a weaker Euro.
Allocation to JPY is also increasing but it could be partially attributed to the appreciation in yen. In Q4, the share of Chinese Yuan continued to increase.
On the current currency reserve trends, Standard Chartered’s Steven Englander, head FX strategist said that political rifts between the US and other countries could be to blame here as USD share of FX reserves have steadily dropped from 72% in 2000 to the current 62%.
Dumping Dollar & Hoarding Gold
De-dollarization is turning out to be beneficial for gold as countries and central banks around the world are hoarding gold to offset the dominance of the US dollar. Earlier this month the latest research of Bank of America Merrill Lynch, analysts stated,
“Even though USD still accounts for 39.9% of international payments according to SWIFT, its market share has declined, as the global economy has become less U.S. and USD-centric. We believe that de-dollarization is an important factor behind the addition of gold to central bank gold reserves.”
Over time we can also expect Bitcoin to become the reserve currency as many experts are expecting it to drive by its limited number that makes BTC more valuable than gold.
Despite all this, the US dollar is still a dominant currency, but the real question is for how long will it be able to maintain its king stature?