US dollar share of global currency reserves at six-year low

According to IMF data, greenback hits smallest percentage since 2013, with yen growing in popularity with central banks.

Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration
The US dollar remains the preferred global reserve currency, but many central banks have increasingly been diversifying into other major currencies [File: Jason Lee/Illustration/Reuters]

The United States dollar’s share of currency reserves reported to the International Monetary Fund fell in the second quarter to its lowest level since the end of 2013, while the yen’s share of reserves grew to the largest in nearly two decades, data released on Monday showed.

Reserves held in US dollars totalled $6.79 trillion, or 61.63 percent of allocated reserves, in the second quarter. The figure compared with $6.74 trillion in the first quarter, which then amounted to 61.86 percent of global reserves.

This was the greenback’s smallest share of overall reserves since the fourth quarter of 2013, when it was 61.27 percent.

Total allocated reserves increased to $11.02 trillion in the second quarter, from $10.90 trillion in the previous quarter.

‘Euro and yen increased’

Global reserves are assets at central banks that are held in different currencies, primarily used to support their liabilities. Central banks also use their reserves to help sustain their respective currencies.

The share of foreign exchange reserves in the European Union‘s euro, Japan‘s yen and China‘s yuan all increased from the previous quarter – extending a recent trend where the dollar’s share of currency reserves has declined at the expense of these currencies.

“With the yuan becoming a reserve currency with the IMF’s blessing, it means loans and things that were not denominated in yuan are now prevalent,” said Juan Perez, senior currency trader with Tempus Inc in Washington DC.

“Additionally, euro and yen increased in the reserves of other banks who saw the euro as a safe haven because of the European Central Bank’s commitment to the currency, while the yen’s safe haven status made it more attractive with every scare or potential for regression in economic progress,” Perez said.

The US dollar remains the world’s dominant reserve currency but central banks around the globe are continuing to diversify their reserves away from the greenback.

The yen’s share of global allocated currency reserves rose to 5.41 percent in the second quarter of 2019 to the largest share since the first quarter of 2001.

The share of allocated currency reserves held in yuan, also known as renminbi, rose to 1.97 percent – the highest since the IMF began reporting the Chinese currency’s share of central bank holdings in the fourth quarter of 2016.

Source: Reuters