On the asset side, de-dollarisation is seen mainly in the central banks’ international reserves, as the dollar is being pushed out by a variety of currencies including the CNY. At the same time, most of this de-dollarisation took place in the environment of zero interest rates. Given the recent normalisation of monetary policy in the US, the prospects of further de-dollarisation remain to be seen, and in 1Q23 the USD share in allocated reserves went up slightly. For the global private sector, the USD seems to remain just as attractive an international asset, especially in the nonfinancial sector.
Looking at the most tracked IMF COFER data, USD seems to be steadily losing ground as a reserve currency, even adjusted for FX rate movements (Figure 15). In 2022, the pace of de-dollarisation accelerated, and USD holdings were reduced in absolute terms for the first time. However in 2023, that process did not continue and may now be facing obstacles in the form of higher return on USD amid 5%+ Federal Reserve interest rates. One argument partially explaining the drop in the dollar’s share in 2022 could have been the strong dollar prompting heavy FX intervention sales in emerging markets to protect local currencies.
For example, Chile spent about half of its FX reserves defending the peso. This could have meant that the dollar’s share in reserves briefly fell below benchmarks. Looking at the long-term developments, the USD seems to be replaced (Figure 16) mostly by Asian currencies, namely CNY and JPY, but also with European currencies, except CHF. The most noticeable progress is seen in CNY as its share went up from zero in 2015 to 2.6% as of 1Q23. For reference, the renminbi was formally included in the SDR basket in late 2015.
In addition to the structure of FX reserves discussed above, diversification towards gold is often mentioned by the de-dollarisation watchers. The popularity of this topic seems to be growing as gold is more insulated against financial sanctions. Looking at the data (Figures 17 and 18) however, one can see that despite the increase in physical gold in FX reserves in 2014 and 2022 (coinciding with the rounds of Russia’s geopolitical challenges), the overall share of gold in global central bank reserves has increased only modestly and mostly thanks to the increase in its price.
