Central Banks Diversify Reserves Amid Dollar Decline

Central banks worldwide are reducing reliance on the US dollar and euro, increasing reserves in diverse currencies and gold, as reported by CareEdge Ratings. Despite a declining share of leading currencies, diversification efforts include the British pound, yen, and gold. The dollar retains dominance but faces reliability concerns.

According to a recent report by CareEdge Ratings, global central banks are actively diversifying their foreign exchange reserves, moving away from heavy reliance on the US dollar and euro in favor of other currencies and gold. The report notes a steady decline in the dollar's share of global reserves over recent decades.

From 66.1% in the 2000-09 period, the dollar's share dropped to 62.9% between 2010 and 2019, and further to 58.5% from 2020 to 2024. A parallel trend is observed with the euro, whose share decreased from 24% (2000-09) to 20.4% (2020-24). Meanwhile, the reserves of the British pound, yen, and Chinese yuan have increased.

CareEdge also highlighted a surge in net gold purchases by central banks, which reflect a shift toward safe-haven assets amidst rising global uncertainties and geopolitical tensions. Despite this diversification, the US dollar remains central to the global financial system, with its usage in international transactions rising to 47% by 2024.

(With inputs from agencies.)