The US dollar’s dominance in global central bank reserves has experienced a significant decline, dropping to 59.2% in the third quarter of 2023, as reported by the International Monetary Fund (IMF). This noteworthy decrease, part of the ongoing de-dollarization trend, reflects a shift in global economic dynamics.
The latest IMF statistics reveal a downward trajectory from the 70% share the US dollar held in 2000. While still the leading reserve currency globally, the euro holds the second position with a diminished share of 19.6%. The Japanese yen’s proportion increased to 5.5%, showcasing a minor shift, while the Chinese yuan, British pound, Canadian dollar, and Swiss franc maintained relatively stable positions.
Contrastingly, SWIFT data highlights the yuan’s rising prominence in international payments, reaching a record high in November. The renminbi now stands as the fourth most used currency globally, reflecting China’s deliberate efforts to diversify away from the US dollar. Cross-border yuan lending has surged, and the People’s Bank of China has entered over 30 bilateral currency swaps with foreign central banks.
China’s push for the yuan’s broader adoption is evident in its response to trade restrictions and sanctions. As geopolitical events, such as Ukraine-related sanctions, led Russia to reduce its reliance on the Western financial system, the yuan’s usage in global transactions increased. The European Bank for Reconstruction and Development (EBRD) warns that Russia’s preference for the yuan in trade could potentially weaken the US dollar’s strength.
Economists point out that trade restrictions imposed by the West have contributed to the growing global use of the Chinese yuan at the expense of the US dollar. The trend reflects a broader international shift towards conducting trade in national currencies rather than the traditionally dominant US dollar.
As the de-dollarization momentum continues, central banks around the world are diversifying their currency holdings, challenging the historical supremacy of the US dollar in global finance.
