The latest data from the International Monetary Fund (IMF) shows that the US dollar now controls over 56.32% of the global foreign exchange reserves. That’s the weakest position since 1995 as the numbers have only going down for three decades. In 2001, the foreign exchange reserves were at 72% and fell below 60% after 2020. The peak in 2001 has not been reclaimed by the currency even after 25 years.
Global central banks currently hold nearly $12 trillion worth of foreign exchange reserves. The US dollar remained unchallenged at the top, but central banks are now diversifying their reserves. This includes buying gold and other commodities, along with leading local currencies. The dominance of the USD taking the top spot is slowly yet steadily ending. Developing countries in Asia, Africa, and Latin America are prioritizing their economies over holding US-denominated assets.
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Currency Dominance Challenged as US Dollar Reserves Fall to Their Lowest
The chart below shows the declining status of the US dollar and shows that it has fallen to the lowest level this century. If the trend continues, chances of it dipping below the 50% level remain high. The development would prove chaotic for the greenback and could affect the broader American economy. It would lead to a deficit in the US economy and eventually hit the job market, leading to a recession and inflation. This is a structural decline that has occurred over the years.
What makes things worse for the US dollar is that the de-dollarization agenda has gone mainstream and is moving at full speed. The DXY index, which tracks the performance of the USD, is struggling to climb above the 100 level. It is currently trading at the 97 range and has dipped close to 8% in a year. The currency had also fallen 10.5% at one point, leading investors to take an entry position with other currencies.
