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Home / Business / The U.S. dollar’s status as a major “global reserve currency” fell to a 25-year low

The U.S. dollar’s status as a major “global reserve currency” fell to a 25-year low



Is the central bank nervous about the Fed’s drunken “Money Printing” and the huge debt of the US government? But still skeptical about the renminbi.

Wolf Richter (Wolf Richter) “WOLF STREET”.

According to the COFER data released by the IMF today, the global share of US dollar-denominated foreign exchange reserves fell to 59.0% in the fourth quarter. This is in line with the 25-year low in 1995. These foreign exchange reserves include U.S. Treasury bills, U.S. corporate bonds, U.S. mortgage-backed securities, U.S. commercial mortgage-backed securities, etc. held by foreign central banks.

Since 2014, the share of the U.S. dollar has fallen by 7 percentage points, from 66% to 59%, an average annual decline of 1

percentage point. At this rate, in the next ten years, the share of the U.S. dollar will fall below 50%:

The Fed’s own US dollar-denominated assets, US$4.9 trillion in US Treasury bonds and US$2.2 trillion in mortgage-backed securities are not included in global foreign exchange reserves as part of its quantitative easing policy.

The U.S. dollar’s ​​status as the world’s major reserve currency is critical to the U.S. government’s continuous increase of its public debt, and U.S. companies’ unremitting efforts to create huge trade deficits by transferring production to cheap countries (mainly China and Mexico). Important. They all count on other central banks willing to hold large amounts of debt denominated in dollars.

But it seems that the central bank has been just a little nervous and wants to diversify its holdings-but the pace is so slow, and not suddenly, because the scale of this matter is large, and if it is not handled properly, it may sweep everyone. home. brand.

Declined for 20 years.

Twenty years ago, when the dollar’s ​​share of reserve currencies was about 70%, a hypothetical competitor had become a daily reality: the euro merged the currencies of its member states into one currency, thus making its weight as the reserve currency. Since then, the share of the dollar has fallen by 11 percentage points.

In contrast, between 1977 and 1991, the share of the U.S. dollar fell by 46 percentage points-the sharp decline in 1979 and 1980 may be related to inflation in the United States, which may get out of control and reached in 1980 Nearly 15% of the peak value. In 1991, inflation was more or less controlled. By 2000, the share of the U.S. dollar had soared by 25 percentage points:

Other reserve currencies.

Since then, the share of the euro has been between 19.5% and 20.6%, but it broke through this range in the fourth quarter and rose to 21.4%, the highest in the data. Euro assets held by the European Central Bank as part of quantitative easing are not included in Euro foreign exchange reserves.

The rest of the reserve currency is also “rans”-the pasta below the table below. This includes renminbi, the bold red line at the bottom:

The yuan threatens the hegemony of the dollar? not yet.

Despite the size and global influence of China’s economy, and despite the hype by the International Monetary Fund when it included the renminbi in the basket of officially supported currencies in October 2016 to appreciate the renminbi as an official reserve currency, the share of the renminbi It is still only 2.25%. Withdrawal rights (SDR).

But the share of renminbi has been slowly increasing. At the rate that has maintained its growth momentum in the past two years (0.36 percentage points in two years), it will take about 50 years for the renminbi to reach its 25% share.

Obviously, other central banks are still skeptical about the renminbi and its meaning, and don’t want to dump all dollars in exchange for renminbi; it’s easy.

It also ran under the microscope: the yen’s rise.

To see what happened to the spaghetti at the bottom of the image above, I zoomed in and restricted it to a range of 0% to 6%. This makes the U.S. dollar and the euro stand out and allows you to view other reserve currencies in detail.

What stands out is the surge in the third largest reserve currency, the yen. This includes a 2.0 percentage point increase in revenue since the fourth quarter of 2016, which reduced the RMB 1.15 percentage point in revenue over the same period. Regarding the yen, the yuan is falling.

Despite Brexit and all the frightening hustle and bustle around it, the fourth largest reserve currency, the British pound (GBP), has not given up any share.

The euro zone has a huge trade surplus-200 billion euros to 275 billion euros per year in recent years-the same as the rest of the world that emerged from the euro debt crisis in 2012. By 2020, the total value of goods in the Eurozone will be US$183 billion.

The trade surplus in the Eurozone suggests that economic zones with a large trade surplus are likely to have one of the highest reserve currencies. There is no need for a large reserve currency to be associated with a large trade deficit. But having a major reserve currency can help the United States cover its trade deficit and increase government debt.

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