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exchange rates to the dollar, which was convertible to gold at the time. Because the gold-backed
dollar was relatively stable, it enabled other countries to stabilize their currencies.

• However, the outsized role of the US dollar in the world economy—has been brought into focus
recently as the robustness of the US economy, tighter monetary policy and heightened
geopolitical risk have contributed to a higher greenback valuation. At the same time, economic
fragmentation, and the potential reorganization of global economic and financial activity could
encourage some countries to use and hold other international and reserve currencies.

• Recent data from the IMF’s Currency Composition of Official Foreign Exchange Reserves
(COFER) point to an ongoing gradual decline in the dollar’s share of allocated foreign reserves of
central banks and governments.

Figure 17: US dollar share of foreign reserves

Source- IMF

• The reduced role of the US dollar over the last two decades has not been matched by increases
in the shares of the other “big four” currencies—the euro, yen, and pound. Rather, it has been
accompanied by a rise in the share of what we have called nontraditional reserve currencies,
including the Australian dollar, Canadian dollar, Chinese renminbi, South Korean won,
Singaporean dollar, and the Nordic currencies.

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