US Dollar Share of Global Currency Reserves

Written by Zornitsa Stefanova

Zornitsa Stefanova

Zornitsa Stefanova is experienced forex and crypto analyst. She also covers various financial topics such as stocks trading and retirement investments.

, | Updated: August 29, 2024

Reserve currencies are being held by central banks and other major financial institutions thus facilitating investments, transactions, and monetary debts, as well as impacting their domestic exchange rate. A large portion of commodities is priced in the reserve currency, leading countries to hold this currency to pay for these items. A reserve currency lowers exchange rate risk as the country does not need to exchange its currency for the reserve currency to accomplish the trade.

The US dollar has played a crucial role as the world’s reserve currency since World War II. Today, its dominant share of foreign reserve holdings amounts to nearly 58%. The euro ranks second, accounting for 21% of foreign reserve holdings. Although the US dollar has lost some ground in recent decades to nontraditional currencies, it has retained its position as a leading reserve currency. Combined, the US dollar and euro account for nearly 80% of global foreign exchange reserves.

In today’s report, the team at BestBrokers aims to provide comprehensive statistical information on the US dollar share of global currency reserves. It has been sourced predominantly from the International Monetary Fund’s (IMF) data on the Currency Composition of Official Foreign Exchange Reserves (COFER) and the Atlantic Council’s GeoEconomics Center study Dollar Dominance Monitor.

Short History of the US Dollar Becoming the World’s Reserve Currency

During the 19th century and the first half of the 20th century, the UK’s pound sterling served as the reserve currency for a large part of the world. The US emerged as a major economic power after World War II and this has enormously impacted the global economy. With a 50% share of the world’s economic output at one point, it made total sense for the US dollar to become the world’s currency reserve.

On July 4, 1944, in Bretton Woods, New Hampshire, United States, the Bretton Woods Agreement was concluded, with delegates from 44 countries agreeing to the US dollar to officially become the world’s reserve currency. The International Monetary Fund, which is tasked with promoting international economic growth and trade, and what became the World Bank Group were established.

Under the agreement, the dollar was pegged to gold and most other currencies were pegged to the US dollar, which, due to its relative stability, enabled them to stabilize their currencies as well. At first, the world economy benefited from the stability of the dollar. However, the gold backing behind the dollars lessened and the value of currency reserves held by other countries was reduced. This eventually led to the abandonment of the gold standard. In 1971, President Nixon decoupled the dollar from the gold standard, which resulted in the floating exchange rates. There have been many predictions pointing to the dollar completely losing its dominance.

Despite the termination of the convertibility of the US dollar to gold, it preserved its position as the world’s currency reserve. According to financial experts, there is little likelihood that the US dollar will experience a downturn soon. The IMF’s data on the currency composition of reserves has shown variations in the dollar’s share, however, it has never fallen below 50%.

By 2000, the US dollar reached a peak value of global reserves at 71%. From this point on, the US dollar reserves have decreased by nearly 13%.

What It Takes to Be a Reserve Currency?

In 2009, the US Treasury Department identified six essential criteria that qualify a currency to become a reserve currency. These include the following:

• Share of global GDP
• Share of global trade
• Financial markets index
• Chin-Ito index (a measure of financial openness)
• Share of global GDP anchored to currency
• S&P long-term credit rating

To demonstrate the reason why the US dollar is the global reserve currency, the Atlantic Council GeoEconomics Center compared the US dollar to several other currencies, including the euro, the pound sterling, the Japanese yen, the Chinese renminbi, as well as the Indian rupee and Russian ruble. The comparison is based on the six essential criteria mentioned above.

* Data provided by Atlantic Council

US Dollar Dominance in Reserve, Trade and Transactions

According to data from the Atlantic Council’s GeoEconomics Center, the US dollar’s dominance has remained strong in terms of exchange reserves, trade, and foreign exchange transactions. The US dollar share of global foreign exchange reserves stands at nearly 59%, the share of export invoicing – at 54%, and the share of foreign exchange transactions – at 88%. The table below provides a comparison between the US dollar and several other currencies, including the euro, the pound sterling, the yen, and the renminbi, based on these three important indicators.

The data has been sourced from IMF’s COFER, Patterns of invoicing currency in global trade: New evidence, and Bank of International Settlements 2022 Triennial Central Bank Survey.

* Data provided by Atlantic Council

International Monetary Fund Data on Currency Composition of Official Foreign Exchange Reserves (COFER)

According to the Currency Composition of Official Foreign Exchange Reserves (COFER) database, which is under the management of the Statistics Department of the International Monetary Fund, the following currencies are being identified as reserve currencies:

• US dollar
• Euro
• Chinese renminbi
• Japanese yen
• Pound sterling
• Australian dollar
• Canadian dollar
• Swiss franc

All other currencies fall under the category of “other currencies”.

The table below represents the most recent data available on the website of the IMF on Currency Composition of Official Foreign Exchange Reserves (COFER) for 2023. As noted by the IMF, the COFER data for individual countries is classified. Currently, there are 149 reporters, including member countries, non-member countries, and foreign exchange reserve entities. The data for the period from 1995 to 1998 is provided on an annual basis, whereas from 1999 onwards – every quarter.

It is important to note that the term “allocated currencies” denotes data on foreign exchange reserves reported under COFER. The term “unallocated reserves” represents foreign exchange holdings of countries reporting reserve assets data for the IMF’s International Financial Statistics but do not to COFER.

* Data provided by International Monetary Fund

Shares of Currency Reserves for 2023

The table below provides data on the respective shares of allocated and unallocated currency reserves for 2023.

* Data provided by International Monetary Fund

The most recent data on the shares of allocated reserves by currency for the Q4 period of 2023 represented as a pie chart is available below.

Shares of Allocated Reserves by Currency for 2023 Q4

* Data provided by International Monetary Fund

Shares of US Dollars from 2016 Q4 to 2022 Q4

To provide a broader overview of the gradual downward trend in the share of the US dollar of global currency reserves, we provide information about the Q4 periods from 2016 to 2022. As the chart indicates, from 65.36% in 2016 Q4, the US dollar’s share declined to 58.52% in 2022 Q4. The US dollar saw a continued downward trend in 2023 too, decreasing to 58.4% in 2023 Q4.

* Data provided by International Monetary Fund

The Rise of Nontraditional Currencies

A blog post available on the IMF website has provided an update on the US dollar’s current standing in the International Reserve System. It continues to lose some of its positions to other currencies in global foreign exchange reserves. However, it has preserved its status as a major reserve currency, with a 58.4% share as of 2023 Q4.

The dollar’s share of allocated foreign reserves of central banks and governments has been decreasing over the last two decades. Despite this declining role, it has not been balanced by an increase in the share of other major currencies such as the euro, yen, and pound. Instead, an increase in the share of nontraditional currencies such as the Australian dollar, Canadian dollar, and Chinese renminbi is being observed.

These trends are demonstrated in the table below. It represents the general tendency of the falling shares of foreign exchange reserves of the USD, EUR, JPY, and GBP, as opposed to a rise in nontraditional currencies (AUD, CAD, RMB, and others) over a period from 2020 Q4 to 2023 Q4.

* Data provided by International Monetary Fund

Considering that over the last two decades, the value of the US dollar has remained largely unchanged, while its share of global reserves has diminished, central banks have been gradually shifting apart from the dollar, as stated in the IMF’s publication.

Written by Z. Stefanova