IMF Working Papers

The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies

By Serkan Arslanalp, Barry J. Eichengreen, Chima Simpson-Bell

March 24, 2022

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Serkan Arslanalp, Barry J. Eichengreen, and Chima Simpson-Bell. The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies, (USA: International Monetary Fund, 2022) accessed December 14, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We document a decline in the dollar share of international reserves since the turn of the century. This decline reflects active portfolio diversification by central bank reserve managers; it is not a byproduct of changes in exchange rates and interest rates, of reserve accumulation by a small handful of central banks with large and distinctive balance sheets, or of changes in coverage of surveys of reserve composition. Strikingly, the decline in the dollar’s share has not been accompanied by an increase in the shares of the pound sterling, yen and euro, other long-standing reserve currencies and units that, along with the dollar, have historically comprised the IMF’s Special Drawing Rights. Rather, the shift out of dollars has been in two directions: a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries that have played a more limited role as reserve currencies. A characterization of the evolution of the international reserve system in the last 20 years is thus as ongoing movement away from the dollar, a recent if still modest rise in the role of the renminbi, and changes in market liquidity, relative returns and reserve management enhancing the attractions of nontraditional reserve currencies. These observations provide hints of how the international system may evolve going forward.

Subject: Asset and liability management, Asset valuation, Central banks, Currencies, International reserves, Money, Reserve currencies, Reserves management

Keywords: Africa, Asset valuation, Currencies, Currency composition, Currency share, Dollar, Dollar dominance, Dollar share, Global, International reserves, International reserves, Reserve currencies, Reserves management, Share of foreign exchange, USD share

Publication Details

  • Pages:

    42

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2022/058

  • Stock No:

    WPIEA2022058

  • ISBN:

    9798400204746

  • ISSN:

    1018-5941