Nontraditional reserve currencies account for 3/4 shift from US dollar: IMF

ANKARA

Nontraditional reserve currencies account for three-quarters of the shift from dollars, as the dominance of the greenback in central banks' reserve holdings is diminishing, the International Monetary Fund (IMF) said Wednesday.

"The US dollar has long played an outsized role in global markets. It continues to do so even as the American economy has been producing a shrinking share of global output over the last two decades," it said in a blog.

"But although the currency’s presence in global trade, international debt, and non-bank borrowing still far outstrips the US share of trade, bond issuance, and international borrowing and lending, central banks aren’t holding the greenback in their reserves to the extent that they once did," it added.

Currencies of smaller economies that were not traditionally held prominently in reserve portfolios, such as the Australian and Canadian dollars, Swedish krona and South Korean won, account for three-quarters of the shift from the US dollar, according to the financial institution.

"In some cases, the issuers of these currencies also have bilateral swap lines with the Federal Reserve. This, it can be argued, creates confidence that their currencies will hold their value against the dollar," it said.

The IMF had said the share of US dollar reserves by central banks fell to 59% during the fourth quarter of 2020 -- its lowest level in 25 years, according to a report in May 2021 by the institution.