According to the IMF, the US dollar has lost ground as the world's top reserve currency to the Chinese yuan and other currencies

According to a new analysis by the International Monetary Fund, the dollar's proportion in international reserves has been declining for the past two decades as central banks seek to diversify their holdings into the Chinese yuan and other currencies.

The decline in the dollar's supremacy, on the other hand, is due to the actions of other countries' central banks, rather than exchange rate or interest rate variations.

The dollar has been steadily neutralized, according to the IMF, as reserve managers largely go in two ways, with a quarter opting for the yuan and three-quarters looking into non-traditional currencies from countries that typically play limited roles as reserve assets.

"A characterization of the evolution of the international reserve system in the last 20 years is thus ongoing movement away from the dollar, a recent if still modest rise in the role of the renminbi, and changes in market liquidity, relative returns, and reserve management enhancing the appeal of nontraditional reserve currencies," according to the IMF report.

According to economist Aleksandar Tomic, China has pushed for more yuan adoption across Africa, and its recent talks with Saudi Arabia for a yuan-based oil agreement have shown that countries are at least considering an alternative or counterweight to the US dollar.

"While any agreement would be symbolic," Tomic said, "the Chinese are not alone in their pursuit for a non-dollar reserve currency." "The demand for dollars in other nations exposes them to the US banking industry, giving the US political leverage."

Tomic believes that in order for China to continue pushing the yuan for a larger share of the global reserve currency, it must demonstrate the yuan's long-term stability.


Related Video:

Follow us on Google News

Filed under

Recent Search