The Dollar’s Decline in Global Reserves: Fact or Fiction?

SourceThe Wall Street Journal
SectorFinancial Markets
CountryMiddle east

In the third quarter of 2020, the dollar’s share of global foreign-exchange reserves slipped to its lowest level in almost a quarter of a century. But don’t let the figures fool you: The greenback is as central to the global financial system as it has ever been. International Monetary Fund data shows the dollar’s share of reported reserves fell to 60.5% in September. The dip has been magnified in nominal terms due to the currency’s depreciation over the past year. But even accounting for that, the real dollar exposure of major central banks is likely higher than it looks. What’s more, that exposure likely rose again in the fourth quarter. After adjusting for currency-market movements, Goldman Sachs notes that dollar holdings actually rose more than euro, Japanese yen, Chinese yuan or British pound holdings in the third quarter. At 5.9% of global reserves, the share of the yen is high compared with recent decades.

But that increase more...