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US dollar's share of global foreign reserves at its lowest since 2013

Washington

THE US dollar's share of global central bank reserves fell to the lowest level since 2013 while holdings of the Chinese yuan rose for a fourth consecutive quarter, International Monetary Fund (IMF) data showed on Friday.

The US currency accounted for 62.3 per cent of global allocated foreign exchange reserves in the second quarter, down from 62.5 per cent and the ninth decline in the past 10 quarters, the IMF said in a report. The drop occurred despite a 5 per cent jump in the value of the US dollar in the second quarter. The euro, yen and yuan each gained as a share of allocated reserves.

Political rifts between the US and other countries could be to blame, but the numbers don't offer firm conclusions, said Steven Englander, Standard Chartered Plc's head of global G-10 FX research and North America macro strategy. Recent emerging market turmoil could require interventions by some central banks, and the US dollar is the easiest currency for that purpose, he said.

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"Countries having political issues with the US may have wanted to re-allocate dollars," Mr Englander said. Even still, it's difficult to determine whether the shift was due to "normal smoothing operations", he said.

The shift to allocated reserves could also be skewing the data, according to Alan Ruskin, global co-head of foreign exchange research at Deutsche Bank. The share of unallocated reserves - those not disclosed in the IMF data - fell in the second quarter to 8.4 per cent from 10.4 per cent.

"I wouldn't go too far in running with the idea that people are shifting out dollars in any aggressive sense," he said.

The ramifications of the shift are still significant. For more than a half century, the US dollar has been the reserve currency of choice for most of the world's central banks, for its depth and stability in global markets. That status has given the US some notable advantages, helping America keep a lid on funding costs and run budget deficits, as trading partners park their dollars in US government bonds.

The benefits also extend to American companies because the widespread use of US dollars in global trade, such as for oil and commodities, often makes it cheaper for US multi-nationals to borrow compared with many of their overseas competitors.

Other findings in the IMF's latest figures show China's yuan is increasingly incorporated in global reserves, growing to 1.84 per cent as a share of allocated holdings from 1.4 per cent in the prior quarter. That came as the value of the currency fell 5.2 per cent against the US dollar in the April-June period.

"China's efforts to internationalise the renminbi are getting to bear some fruit," Mr Englander said. BLOOMBERG