Dollar’s Share of Global Currency Reserves at 6-Year Low; Yuan’s Share Biggest Ever

The percentage of US dollars held as currency reserves globally dropped to the lowest level in nearly six years in the second quarter of 2019 according to the latest IMF data. Meanwhile, Chinese yuan made up the biggest percentage of reserves ever.

The dollar’s shrinking share of global reserves comes as countries like Russia and China move toward de-dollarization in an effort to undermine the ability of the US to weaponize the dollar as a foreign policy tool. The global gold rush on the part of central banks is part of this movement.

Reserves held in dollars globally totaled $6.79 trillion in the second quarter. That represented 61.63% of allocated reserves. This compares with $6.74 trillion, or 61.86%, in the first quarter of the year. It was the lowest percentage of dollars held as a reserve currency since Q4 2013.

The share of Japanese yen, euros and Chinese yuan all increased in Q2.

In fact, the share of yuan held by central banks rose to 1.97%. That is the highest level since the IMF began reporting its share of central bank holdings in 2016.

Many central banks are also replacing dollars with gold. Through the first half of 2019, a dozen central banks had increased their gold reserves by at least 1 ton. Central bank gold purchases this year continue a trend we saw through 2018. In total, the world’s central banks accumulated 651.5 tons of gold last year. The World Gold Council noted that 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second-highest annual total on record.

Russia has led the way in accumulating gold. The Central Bank of Russia has added around 106 tons of gold to its reserves this year. Meanwhile, Russia almost completely divested itself of US Treasuries last year. According to Bank of America analysts,  the amount of US dollars in Russian reserves fell from 46% to 22% in 2018. Russias gold bet has been paying off. The country’s gold reserves topped $100 billion last month.

The US dollar remains the dominant reserve currency, but there is a clear movement toward de-dollarization. And it’s not just countries like Russia and China moving away from dollars. Even Europe has joined the de-dollarization party.

Peter Schiff has talked about central bank gold-buying and the move away from the greenback. He has noted that the US went off the gold standard in 1971, but he thinks the world is going to go back on it.

The days where the dollar is the reserve currency are numbered and we’re going back to basics. You know, everything old is new again. Gold was money in the past and it will be money again in the future, and central banks that are smart enough to read that writing on the wall are increasing their gold reserves now.”