As Dollar Loses Reserve Status, Central Banks Diversify
The dollar's position as the world's reserve currency has wavered. Central banks are responding by diversifying.
By David Turner
The dollar may still be the dominant reserve currency hoarded in central bank coffers, but it does not quite hold the commanding position of yore.
Its share has dropped from 71.5 percent of official forex "allocated reserves" at the beginning of the 2000s forex reserves whose currency denomination is known to just over 60 percent today.
In the meantime, though, no single currency has quite managed to usurp the greenback.
Instead, foreign central banks have favored a more diversified portfolio, according to IMF data. The combined share of allocated reserves held by the euro and dollar has dropped from just above 90 percent in mid-2009 to 87 percent only three years later. Is it possible that central banks will continue diversifying their forex portfolios creating a wide range of currencies with an equally good, or bad, claim to be global reserve currencies?
The IMF numbers do not tell us which currencies account for this diversification: The lions share of it comes from the IMFs mysterious "claims in other currencies" category. This figure, which excludes sterling, the yen and the Swiss franc, as well as the dollar and the euro, has quadrupled since late 2007 to $310 billion-worth. The increase in the overall share of allocated reserves held in "other currencies" has risen over the same period from only 1.8 to 5.3 percent.....