Currency holding in foreign exchange reserves shows the status of key international reserve currencies
Foreign exchange reserves are cash and other reserve assets held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets., according to Wikipedia.
The greenback has been the most predominantly used foreign currency in any foreign exchange reserve, marking it as the key international reserve currency in international transaction.
Many have been talking about the rise of China and its currency, yuan, and conversely, the fall of the US dollar as indications that the global order may soon change. What picture do the data paint?
Source: Currency Composition of Official Foreign Exchange Reserves (COFER), International Financial Statistics (IFS)
Note: Shares of unallocated reserves have been excluded for simplicity
The graph shows that the US dollar still takes up more than 60% of the world’s foreign exchange reserves, though its share has decreased from 70% back in the 2000s. Other major currencies have stayed the same, with the euro taking up about 20%, and the pound and yen about 5% to 6% as of 2020.
Then where does the yuan stand? The official IMF data for the yuan has been compiled since 2017, and its share of the world’s foreign exchange reserves is about 2% (But its absolute amount has roughly tripled, from 90 billion US dollar in 2017 to 244 billion US dollar in 2020).
The composition of foreign reserve is a key indication of the status of international reserve currencies. While it is true that the US dollar has been losing its shine, the yuan seems to still have a long way to go.
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