2023-12-23T18:41:18+00:00
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/ International Monetary Fund data showed, today, Saturday, a decrease in the US dollar’s share of global central banks’ reserves during the third quarter of this year, compared to an increase in the Japanese yen’s share of them.
The US dollar accounted for 59.2% of foreign exchange reserves allocated globally during the three months ending last September, down from the revised 59.4% in the previous three months.
According to International Monetary Fund data on the strength of official foreign exchange reserve currencies, or COFER, this percentage is the lowest since the last quarter of last year, according to what was reported by Bloomberg and viewed by the Al Arabiya Business website.
The superiority of the US dollar helped the United States control financing costs and manage the budget deficit, as trading partners pumped their dollars into US government bonds.
This also supports US companies because the widespread use of the US dollar in global trade – such as oil and commodities – often makes borrowing less expensive for US multinationals.
The euro‘s share of reserves decreased slightly from 19.7% to 19.6%, while the Japanese yen’s contribution increased from 5.3% to 5.5%.
The shares of the Chinese yuan, the British pound, the Australian and Canadian dollars, and the Swiss franc did not change significantly. The “other currencies” group’s proportion of reserves grew from 3.6% to 3.9% during the previous quarter.
Although the US dollar was usually the preferred reserve currency for the majority of central banks around the world due to its widespread use and stability in global markets, it gradually began to lose its dominance since the beginning of the current millennium, when its share was more than 70%.
Changes can affect the relative values of various government securities, although this effect tends to be smaller because bond yields in major currencies usually move together. In periods of weakness of the US dollar against major currencies, the share of the US dollar in global reserves generally decreases due to the increase in the dollar value of reserves denominated in other currencies (and vice versa in periods of strength of the US dollar).
In turn, US dollar exchange rates can be affected by several factors, including divergent economic paths between the United States and other economies, differences in monetary and fiscal policies, as well as central banks’ sales and purchases of foreign exchange.
Despite major structural shifts in the international monetary system over the past six decades, the US dollar remains the dominant international reserve currency, and any changes in the status of the US dollar are likely to occur in the long term.
5.4% to 5.6%. This shift highlights a growing confidence in the yen among central banks, as well as possibly reflecting broader economic trends in Asia. Analysts note that while the dominance of the US dollar remains significant, increased diversification in reserve holdings is becoming more common as countries seek to mitigate risks associated with currency fluctuations.
Moreover, the report underscores the importance of currency stability in global trade, as central banks adjust their strategies in response to economic conditions and trade dynamics. The ongoing impact of geopolitical tensions, supply chain disruptions, and inflation trends may further influence central banks’ decisions on how and where to allocate their reserve currencies in the future.
As the global economic landscape evolves, the competition among currencies may lead to continued shifts in central banks’ reserve compositions, reflecting changing patterns in global trade, investment flows, and monetary policy directions.