In the final quarter of 2024, there was a notable shift in global reserve currencies. While the U.S. dollar's dominance slightly increased in terms of percentage holdings, its equivalent value dropped due to fluctuations in exchange rates. Additionally, other major currencies like the euro, pound sterling, and yuan also experienced declines in their dollar-equivalent values. Conversely, some currencies such as the Canadian dollar showed minor increases in their share of global reserves. Overall, global foreign exchange reserves decreased, reflecting broader economic dynamics.
Analysts attribute these changes partly to currency appreciation against the U.S. dollar and strategic adjustments by central banks. Despite minor shifts, the U.S. dollar remains the most liquid and preferred reserve asset globally. However, allocations toward gold have been gaining traction in certain regions, though this trend is not fully captured in official reports.
Shifts in Major Currencies' Reserve Status
The fourth quarter of 2024 marked a period where several key currencies saw their dollar-equivalent values decline in global reserves. This decrease affected major players including the euro, pound sterling, and yen. Meanwhile, the U.S. dollar maintained its leading position but experienced a slight increase in its percentage of total reserves. The Canadian dollar uniquely registered an uptick in its proportion among global reserves during this time frame.
According to International Monetary Fund (IMF) data, the overall value of global foreign exchange reserves diminished from $12.75 trillion at the end of Q3 2024 to $12.36 trillion by year-end. Broken-down reserves, which specify individual currencies, similarly fell from $11.84 trillion to $11.47 trillion. During this same period, the U.S. dollar appreciated by 7.7% relative to a basket of peer currencies, influencing the valuation of reserves held in alternative currencies. Notably, the euro’s share of global reserves slipped to 19.8%, while the British pound saw a reduction to 4.73%. In contrast, the Canadian dollar's portion rose slightly to 2.77%. These movements underscore evolving preferences among global financial institutions regarding reserve allocation strategies.
Persistent Dollar Dominance Amidst Changing Dynamics
Despite fluctuations in its dollar-equivalent value, the U.S. dollar retained its status as the predominant global reserve currency. Its share of reported holdings edged up marginally to 57.8% from 57.3%. Analysts suggest that the resilience of the U.S. dollar stems from the unparalleled liquidity and depth of the American financial markets. Furthermore, while allocations to gold are increasing in specific countries like China, India, and Russia, these trends remain outside the scope of IMF COFER reports.
Brad Bechtel, global head of FX at Jefferies in New York, emphasized that dramatic shifts in reserve composition are unlikely given the entrenched role of the U.S. dollar in international finance. He noted that apart from the growing interest in gold reserves in select nations, no significant deviations were observed in traditional reserve allocations. The Chinese yuan's share remained steady at 2.18%, indicating stable confidence in its role as a reserve currency. Similarly, the Japanese yen exhibited minimal change, holding steady at approximately 5.82%. These figures highlight the ongoing stability within the global reserve currency landscape despite periodic adjustments influenced by market conditions and policy decisions.