Barry Eichengreen and Chima Simpson-Bell on Currencies that Shine

The latest IMF‑Berkeley research shows the U.S. dollar’s grip on global reserves is loosening. Since the turn of the century, the dollar’s share of identified foreign‑exchange reserves dropped from just above 70% to below 60%, and foreign holdings of U.S. Treasury securities have similarly declined. This trend emerges amid heightened market volatility and renewed debate over the dollar’s safe‑haven status, reminding policymakers that even the world’s most liquid asset can face pressure when confidence wavers.

A notable shift is the rise of small, well‑managed currencies—such as the Australian, Canadian dollars and the South Korean won—into reserve portfolios. Their tighter bid‑ask spreads and ease of trade make them attractive alternatives, especially for nations seeking to sidestep U.S. financial sanctions. Gold, too, is resurging as a diversification tool; emerging‑market central banks are increasing gold holdings to hedge against sanction risk and political uncertainty. Russia’s post‑2014 gold accumulation exemplifies how sovereigns use bullion to preserve liquidity when dollar assets become vulnerable.

China’s renminbi remains a long‑term contender despite current limitations. Inclusion in the IMF’s SDR basket and expanding swap lines signal growing acceptance, yet capital controls, limited market transparency, and a non‑independent central bank constrain broader adoption. Meanwhile, political alignment—measured by voting patterns in the United Nations—continues to shape dollar reliance, underscoring the intertwining of geopolitics and finance. As the global economy navigates volatility, the dollar’s dominance appears challenged, but its deep‑liquid Treasury market and historic safe‑haven perception still provide a formidable buffer against rapid displacement.