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The US Dollar’s Share of Global Reserve Currencies Drops as Japanese Yen’s Share Increases

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The dominant position of the US dollar as the reserve currency of choice could be jeopardized as its share of the global currencies held in reserves continues to decline. Data from the International Monetary Fund (IMF) show that the dollar’s share of reserves fell from 66% in the third quarter of 2014 to just over 60% in the third quarter of 2020. This means that the dollar’s share has decreased at a rate of about 1 percentage point per year.

The share of the US dollar in the global reserve currencies decreases as the share of the Japanese yen increases

Fluctuating reserve currencies

According to a report, this latest figure is the lowest percentage of the dominant currency in almost 8 years. The report also states that “the decline in the dollar share (actually) began 20 years ago, when the euro took the place of the previous currencies that were previously in the basket of foreign exchange reserves.” According to the data, 1991 is the year worst for the dollar. That year, the dollar’s reported share of reserves fell to 46%.

Meanwhile, the euro, which was “a single currency’s final effort to dethrone the dollar,” as the number one reserve currency has held between 19.5% and 20.6% over the past six years. Similarly, China’s yuan renminbi (RMB) currency, which became the official reserve currency in October 2016, appears to be making little progress. After the inclusion of the RMB in the “currency basket of the IMF, which supports the Special Drawing Rights (SDR)”, the currency of the Asian country only received a share of 2.13% of the reserves. China is the second largest economy in the world.

The share of the US dollar in the global reserve currencies decreases as the share of the Japanese yen increases

The yen rise

On the flip side, only the Japanese yen appears to have appreciated after the Asian country’s reserve currency increased from 3.5% in 2015 to 6% by the end of Q3 2020. This made “the yen the third – largest reserve currency. “

Meanwhile, the same report states that while the dollar’s status as the top global reserve currency continues to deteriorate, it “would take a decade for the dollar’s share to fall to 50% while other currencies catch up”. In any case, this deterioration will only have an impact on the US when the dollar component “falls well below 50%”.

Do you agree that the dominance of the US dollar will continue to deteriorate? Let us know what you think in the comments section below.

Photo credit: Shutterstock, Pixabay, Wiki Commons

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