Long, slow erosion of the US dollar’s dominance. China’s renminbi keeps losing ground, many other currencies gain, as does gold.

The US dollar’s dominance as the global reserve currency has been slowly eroding over the years, with central banks diversifying their holdings to other currencies and even to gold. According to the IMF’s COFER data for Q1 2023, the share of USD-denominated foreign exchange reserves increased slightly to 58.9% from 58.4% in Q4.

While the US dollar remains the most dominant global reserve currency, many other currencies have been gaining ground, including the euro, Japanese yen, British pound, Canadian dollar, Australian dollar, and Swiss franc. The Chinese renminbi, however, has been losing ground, with its share of global reserve currencies dropping to 2.1% in Q1, the lowest since Q2 2020.

Central banks have also been increasing their holdings of gold as a reserve asset, with total gold bullion holdings currently at 1.16 billion troy ounces, roughly $2.7 trillion. This trend of diversification to other currencies and gold is driven by factors such as the growing liquidity of markets in nontraditional reserve currencies and the search for higher yielding assets.

Exchange rates between the USD and other reserve currencies play a role in determining the magnitude of non-USD assets, but the USD holdings themselves remain stable. Despite fluctuations in exchange rates, the Dollar Index is back at 101, where it was in 1999.

Overall, the long, slow erosion of the US dollar’s dominance as the global reserve currency continues, with many other currencies gaining ground and central banks diversifying their holdings to mitigate risks and seek higher returns.