25 Euro to USA
The share of US dollar assets held in foreign exchange reserves by central banks has seen a decline over the past two decades. While the US dollar remains the dominant reserve currency, its share has fallen from 71 percent to 59 percent since the introduction of the euro in 1999. This shift represents a 12 percentage point drop, indicating a potential long-term trend away from the US dollar.
Alt: Line graph depicting the fluctuating US dollar share in global reserves over time, compared to the Euro and other currencies.
Fluctuations in exchange rates can significantly impact the composition of central bank reserve portfolios. When the US dollar weakens against other major currencies, its share of global reserves tends to decrease. This is because the US dollar value of reserves held in other currencies rises. Conversely, a strengthening US dollar leads to an increase in its share. Factors influencing US dollar exchange rates include differences in economic performance, monetary and fiscal policies, and central bank interventions in foreign exchange markets.
The value of the US dollar against other major currencies has remained relatively stable over the past two decades. However, short-term fluctuations in exchange rates account for approximately 80 percent of the quarterly variance in the US dollar’s share of global reserves since 1999. The remaining 20 percent is primarily attributed to central banks actively buying and selling currencies to manage their own currency’s value.
When accounting for exchange rate fluctuations, the US dollar’s share of reserves held steady in the past year. However, the long-term decline in the US dollar’s share of global reserves, despite its stable value, suggests a gradual shift by central banks away from the US dollar. This diversification strategy might be driven by factors such as the emergence of alternative reserve currencies and a desire to reduce reliance on a single currency.
Several emerging market and developing economies are expected to continue diversifying their reserve holdings, potentially leading to a further decline in the US dollar’s share. Some countries have explicitly stated their intentions to reduce their reliance on the US dollar, seeking to rebalance their portfolios with other currencies like the Euro, Chinese Renminbi, and others. This trend reflects a broader shift in the global economic landscape.
Despite these shifts, the US dollar remains the most widely used reserve currency for international transactions. The future of the US dollar’s dominance in global reserves will likely depend on long-term economic and geopolitical factors, including the performance of the US economy relative to other major economies, the stability of the US dollar, and the emergence of competing currencies. While short-term fluctuations are common, significant changes to the US dollar’s status as the primary reserve currency are expected to unfold gradually over time.