Experts say that this is mainly due to the greater space of individual countries’ currencies in their foreign exchange reserves of China and Russia. At the same time, there is a deep concern about the long-term prospects of the dollar.
2020 was the fifth consecutive year when the dollar’s share in the foreign exchange reserves of countries around the world decreased. Its share last year was 59 per cent. Experts say that this is mainly due to the greater space of individual countries’ currencies in their foreign exchange reserves of China and Russia. At the same time, there is a deep concern about the long-term prospects of the dollar.
Significantly, since the second world war, governments of all countries have been looking at investment in American bonds by linking it to their economic stability. Many countries have kept a certain amount of dollars in their reserves for monetary emergency. But the latest data from the International Monetary Fund (IMF) indicates that the dollar’s attractiveness in the form of reserve currency is declining. At the time of the Corona epidemic, the US has raised doubts about the long-term prospects of the dollar due to increasing debt ratio and fiscal deficit. So now governments are investing more in alternative currencies and non-currency options like gold.
The IMF has released a list of foreign exchange reserves of 149 countries in 2020. Accordingly, the combined currency reserves of these countries stood at $ 12.7 trillion. Last year, the dollar volume in gross terms increased by four percent and reached seven trillion dollars. According to Daisuke Karakama, chief economist at Mizuho Bank, Japan, it was because emerging economies invested more of their home currency in dollars to make it easier for them to import. Another reason, according to Karakama, was that the US issued more bonds last year to raise more money for the Corona stimulus package.
But as far as the ratio of dollars in foreign exchange reserves is concerned, it declined by 1.7 percent. This was the first time since 1995 that the dollar’s share of foreign exchange reserves had fallen below 60 percent. Significantly, for most of the time since 2001, the share of the dollar in foreign exchange reserves was above 70 percent. Two IMF economists, Serkan Arsenalp and Cheema Simpson-Bell, wrote in a blog that, keeping in mind the long-term, the share of dollars in foreign exchange reserves has fallen. This is an indication that central banks of different countries are really slowly moving towards dollar options.
According to the US Ministry of Finance, in 2020 China had an investment of 1.07 trillion in US government securities. This is 20 percent less than seven years ago. Kota Hirayama, senior economist at Nikko Securities, told a website that much of China’s treasury holdings are in the form of foreign exchange reserves. The dollar’s share in Russia’s foreign exchange reserves has also decreased. Its foreign exchange reserves now stand at $ 578.7 billion, of which the dollar is only 20 percent. As of 2017, this share used to be around 40 percent.
The euro, yen (Japanese currency) and yuwan (Chinese currency) have benefited from the depreciation of the dollar. In 2020, the euro’s share of foreign exchange reserves increased to 21 percent. This is equivalent to the share of the euro six years ago. Then the euro share reached the highest level. The share of the yen is now reduced to 6 percent. For the first time in two decades, its share has reached here. Investors in China bought the yen worth $ 2.2 trillion last year. Yuvan’s share is reduced to 2 percent. This is its highest level. Apart from this, countries have also increased investment in gold.
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