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Global dollar reserves declines in Q3

Global dollar reserves declined in 2020 Q3, but dollar reserves in world’s central banks remain the largest

International Monetary Fund (IMF) said that the global dollar reserves in 2020 Q3 declined to 60.4%, compared to 61.2% in Q2. But, dollar reserves in world’s central banks remain the largest.

In 2020 Q1, dollar global reserves were 61.5%. This indicates that the share has declined for two consecutive quarters.

The United States has pumped billions of dollars into the markets in 2020. The US Congress approved this stimulus plan in an attempt to revive the economy severely affected by the Coronavirus.

Global reserves are assets of various currencies held by central banks mainly used to support their liabilities. Sometimes, central banks use reserves to support their domestic currencies.

According to IMF, global dollar reserves increased to a record $12.254 trillion in Q3 from $12.012 trillion in the Q2.

Total reserves in US dollars reached $6.937 trillion, that is 60.4% of the reserves set aside in Q3. Dollar reserves were $6.899 trillion in Q2, that is 61.2%.

Dollar future

Questions have been rising recently about the future of the dollar; will it preserve its status, or decline due to the US geopolitical power decline, huge debts and the emergence of alternative currencies.

 “The dollar will one day lose its status,” said David Rosenberg, chief economist and strategist at Rosenberg Research, in his latest research note. “As was the case with every global reserve currency before it, but the chances of this happening in our lifetime are exceedingly low”.

“The depth of dollar dominance is overwhelming and shows no immediate signs of drying up, even in the aftermath of Covid-19,” he added.

The dollar has fallen 6.4% since the beginning of this year – the currency’s worst annual performance since 2017.

Rosenberg believes that the dollar is going through a downward cycle, but it is not on the brink of collapse.

The euro’s share of global reserves stabilized at 20.5% in the third quarter, compared with 20.1% in the second quarter, according to IMF. At its peak in 2009, the share of the euro was 28%.

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