A variety of factors have brought the status of the dollar as the most dominant currency of the world being questioned. Alongside the race with China as well as the aftermath of the conflict in Ukraine as well as raising the U.S. debt ceiling, the removal of Russia from international financial system last year led to the speculation about the possibility that non-U.S. allies could shift away to dollar-based currencies.

Based on International Monetary Fund information that the share of dollars in the official FX reserves dipped to a record lowest of 58% during the 4th quarter in 2022. The share of dollars in the central banks’ foreign reserves in the last quarter of 2022 was the lowest level in two decades, however the decline has been gradual and now stands close to the same level to the 1995.

Central banks deposit rainy day money in dollars to ensure they require support to the exchange rate during economic downturns. When a currency is weak excessively relative to dollars, oils as well as other commodities traded in U.S. currency become expensive increasing living expenses as well as fuelling inflation.

Source: reuters.com