According to a note from Eurizon SLJ Asset Management, the percentage of reserves held in USD by Central Banks falls over 50% of the total global reserves. The note also mentioned that the recent sanctions put by the United States Government against the Bank Of Russia had eroded trust in the dollar as a reserve currency. However, there are many more factors that led to this decline, including the COVID-19 pandemic and the growing popularity of digital currencies such as Bitcoin.
Central Bank Dollars Reserves hit 47 percent as trust in the currency declines
The US dollar has long been the world’s primary reserve currency, with most countries holding a significant amount of US dollars in their central bank reserves. However, this has changed rapidly in recent years, as more and more countries have been diversifying their reserves by investing in currencies like the euro, Japanese Yen, and Chinese Yuan.
On April 17, 2023, a note issued by Eurizon SLJ Asset Management revealed that the percentage of the reserves that Central banks held in US dollars fell over 50 percent. Analysis from the firm explains that this decline in just a single year is really exceptional and marks the acceleration of the predicted erosion rate of the US dollar.
The decline in the US dollar’s dominance as a reserve currency is a significant development, as it has many major implications for the global economy. One potential consequence is that the US dollar’s value could decline significantly as demand for the currency worldwide decreases. This could lead to inflation and other problems for the US economy.
However, it is good news for the crypto industry as a decline in the value of the US dollar could lead to a rise in the value of its alternative currencies, such as BTC, because investors would look for alternatives to store their value.
Causes for the decline in US Dollar reserves worldwide
As you know, the percentage of reserves held in USD by Central Banks falls over 50 percent of the global total of reserver One of the main reasons for the decline in the US dollar’s dominance as a reserved currency is the COVID-19 pandemic which has led to significant economic disruption worldwide, with many countries experiencing significant declines in economic growth.
Another reason for the decline in the US dollar’s dominance, as reported by Eurison SLJ Asset Management firm, has to do with the wide package of sanctions that the US government has applied to Russia due to its involvement in current Russia- Ukraine conflict, freezing its gold and foreign current assets abroad. It has also put several key companies on the designated entity list of the OFAC.
The dollar has become “TOXIC”
This de-dollarisation trend fueled by the so-called weaponization of sanctions by the US government has global blocs like BRICs and ASEAN (Association of Southeast Asian Nations) looking for alternatives to safely conduct trade among themselves.
BRICS is looking for an initiative to create a common currency that will be discussed at the next summit in South Africa. In the same way, the ASEAN countries have called for reducing reliance on the US dollar and the usage of national currencies for international settlement, fearing the applications of secondary sanctions.
What are your thoughts about the drop in the global percentage of reserves held in US dollars? How do you think it will impact the US economy? Let us know in the comments below. And if you found our content informative, share it with your family and friends.
Also Read: European Parliament Passes MiCA; new framework for crypto.
