According to data from the International Monetary Fund (IMF), the US dollar’s share of global reserves increased to 59% in the first quarter of this year. This rise comes at a time when the Federal Reserve is aggressively implementing a rate-hike cycle in an effort to curb inflation.
In contrast, the euro’s share of reserves slipped to 19.8% in the first quarter, down from 20.4% in the previous three months. Global reserves, which are reported in US dollars, are assets held by central banks in various currencies to support their liabilities. Central banks often utilize these reserves to help stabilize their respective currencies.
Joe Manimbo, a senior market analyst at Convera in Washington, noted that the dollar remains an attractive destination for those seeking yield or a safe place to invest due to global growth concerns. Despite a 0.9% decline in the dollar index in the first quarter, it recovered slightly by rising 0.4% in the second quarter. On the other hand, the euro experienced a 1.2% increase in the first quarter, following a significant surge of 9.3% in the fourth quarter of 2022.
The Federal Reserve, which has implemented more interest rate hikes last year and in 2023 than any time since the 1980s, has raised rates to a range of 5.0% to 5.25% from zero in March 2022. Market participants believe that while the dollar will continue to be the dominant currency, its influence will eventually diminish.
A survey conducted by the Official Monetary and Financial Institutions Forum (OMFIF) revealed that 75 central bank reserve managers anticipate only a slight decrease in the dollar’s share of total reserves to 53% in the next decade, from just under 60% currently.
In conclusion, the US dollar’s share of global reserves rose in the first quarter of this year, while the euro’s share slightly declined. Despite fluctuations in their respective performance, the dollar remains an attractive option for investors seeking yield or a safe haven, particularly given the uncertain global economic outlook. However, future projections suggest that the dollar’s share may gradually decrease over the next decade.
