US Dollar Reserve Currency Status Continues Downtrend While Gold as Reserves Close in on WWII Levels
With the formation of BRICS and other countries reducing their US dollar reserves, the currency’s dominance is steadily declining.
- The US dollar’s global reserve share has fallen to 58.4%, down from 71% in 2000.
- Countries are diversifying into nontraditional currencies like China’s RMB and gold.
- Central banks are boosting gold reserves to avoid sanctions risks, pushing gold as reserves to almost WWII levels.
As of Q4 2023, the US Dollar’s share of global central bank reserves fell to 58.4%, down from 59.2% in Q3 2023. This represents a significant decline from its peak in 2000, when it accounted for 71% of global reserves, according to the International Monetary Fund.
Recent IMF data reveals that the Euro maintains nearly 20% of the global reserve currency share, followed by the Japanese Yen and the British Pound Sterling. Meanwhile, China’s Renminbi accounts for only 2.29% of the reserve currency status.
Gold has also seen an increase in reserve status, approaching its highest level since World War II. When combined, China and Russia’s gold reserves now amount to 56.5% of the US gold reserves.
Breakdown of the US Dollar’s Decline
The IMF found that the decline in the US Dollar’s reserve currency share was not absorbed by the major currencies such as the euro, yen, and pound. Instead, the reduction was redistributed among nontraditional reserve currencies, including the following:
- Australian dollar (AUD)
- Canadian dollar (CAD)
- Chinese renminbi (RMB)
- South Korean (KRW)
- Singaporean dollar (SGD)
- Other Nordic currencies
The report highlighted that nontraditional reserve currencies have become attractive due to diversification, higher yields, and the ease of digital acquisition. Notably, the Chinese RMB’s gains accounted for a quarter of the US dollar’s decline.
Recently, Russia announced that 90% of all trade with China will be conducted in rubles or yuan, abandoning the US dollar. Additionally, Saudi Arabia’s 50-year-old petrodollar agreement with the US has expired, enabling them to diversify the currencies they accept for their oil.
Emergence of Gold for Reserves
The report highlighted one major reason for central banks to shift their reserve portfolios against currencies, citing sanctions as a huge problem. Due to the dangers of sanctions, these reserve portfolios have shifted in favor of gold, which is resistant to the risk of sanctions.
Despite a significant decline in gold holdings since the 1960s, IMF data shows a reversal of this trend starting around 2010, with bullion reserves approaching their highest levels since World War II.
Additionally, as per Trading Economics data, Russia remains the 6th largest holder of gold reserves with 2,333 tonnes, valued at nearly $140 billion. China follows closely with 2,265 tonnes, worth approximately $136 billion.
While the United States remains the largest holder of gold reserves with 8,133 tonnes valued at nearly $488 billion, and Germany follows in second place with 3,353 tonnes worth over $201 billion, the combined gold reserves of Russia and China would place them second, with over 4,598 tonnes, amounting to 56.5% of the US total gold reserves.
The IMF cautions that, despite the uptrend, gold’s share of reserves remains historically low. Further data are needed to fully understand gold’s impact on central banks’ holdings.
With the formation of BRICs and other countries opting to trade in their own currencies as opposed to the USD, the US dollar reserve currency status could see a further decline, a belief shared by US Congressman Thomas Massie and others.
