The percentage of reserves held in U.S. dollars by central banks has fallen to less than half of the global total of reserves, according to a note from Eurizon SLJ Asset Management. The note states that the recent sanctions enacted by the U.S. against the Bank of Russia have eroded trust in the dollar as a reserve currency.

Central Bank Dollar Reserves Hit 47% as Trust in the Currency Erodes

Central banks are beginning to diversify their reserves away from the U.S. dollar. A note issued by Eurizon SLJ Asset Management on April 17 revealed that the percentage of the reserves that central banks held in dollars hit 47% during 2022, falling sharply since 2021, when dollars represented 55%.

Analysts from the firm explain that this decline in just one year is “exceptional,” and marks an acceleration of the predicted erosion rate of the U.S. dollar.

The cause, the report states, has to do with the wide package of sanctions that the U.S. government applied to Russia due to its involvement in the current Russia-Ukraine conflict, freezing its gold and foreign currency assets abroad, and putting several key companies on the designated entity list of the Office of Foreign Assets Control (OFAC).

The note explains these “exceptional actions” have made other countries less willing to hold their reserves in the form of U.S. dollars.

The Dollar Has Become ‘Toxic’

This de-dollarization trend fueled by the so-called “weaponization” of sanctions by the government of the U.S. has global blocs like BRICS and ASEAN looking for alternatives to safely conduct trade amongst themselves.

BRICS is currently studying an initiative for creating a common currency, that will be discussed at the next BRICS summit to be held in South Africa. In the same way, ASEAN countries have called for reducing reliance on the dollar, and the usage of national currencies for international settlements, fearing the application of secondary sanctions.

On April 19, Russian Deputy Minister of Foreign Affairs Alexander Pankin criticized this “weaponization,” noting that more and more countries were increasing their gold holdings while dropping their foreign currency reserves. He stated:

These trends show that the US dollar is becoming big, strong, but still toxic for everyday operations. It’s not a mainstream trend, but I believe it might become a trend.

What do you think about the drop in the global percentage of reserves held in U.S. dollars? Tell us in the comments section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.

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In a congressional hearing, White House economist Jared Bernstein says there’s “some evidence” that China wants the U.S. dollar to lose its status as the world’s reserve currency. However, U.S. Senator Bill Hagerty stressed that the biggest threat to the USD dominance comes from within.

China Wants to See U.S. Dollar Losing World’s Reserve Currency Status, Says Bernstein

White House economist Jared Bernstein answered some congressional questions about the U.S. dollar’s status as the world’s reserve currency before the Senate Banking Committee on Tuesday during a hearing on his nomination to be chairman of the Council of Economic Advisers.

Bernstein, a current member of the White House Council of Economic Advisers, previously served as chief economist to then-Vice President Joe Biden in the Obama-Biden Administration before joining the Center on Budget and Policy Priorities, where he served as a senior fellow from 2011 to 2021.

During the hearing, Senator Bill Hagerty (R-TN) noted efforts by several countries that threaten the status of the U.S. dollar as the global reserve currency, such as Brazil’s president, Luiz Inácio Lula da Silva, calling for an end to the dollar trade dominance. Emphasizing that China applauded this, the senator from Tennessee asked Bernstein: “Do you agree that China wants to see this happen?” The White House economist promptly replied:

I think there’s some evidence that it does.

Commenting on why China wants to see the USD dominance reduced, Bernstein detailed: “I think there are extremely important privileges, and even in the realm of security reasons, to have — the benefits from having — the reserve currency.” He added: “One of the most obvious is, of course, sanctions. If you control the reserve currency, you’re able to impost sanctions as we’ve done on Russia to considerable effect.”

Debt Ceiling and the ‘Biggest Threat’ to USD

Senator Hagerty proceeded to raise concerns about “the incredible debt” the U.S. government “has piled up,” and “the interest rate cost, which the CBO [Congressional Budget Office] has projected to actually be greater than our entire defense budget.”

However, Bernstein said: “One thing we could really do to help both the dollar maintain its reserve currency status, but also to protect the value of the dollar, would be to raise the debt ceiling.”

Commenting on the U.S. dollar potentially losing its reserve currency status, Hagerty stressed the importance of getting fiscal policies in order. “The fiscal spending is, I think, going to let the market dictate what happens to the dollar as a reserve currency, and if we continue to allow deficit spending to get out of control, I very, very seriously am concerned that we do it to ourselves. I know China would like to do it to us.” He concluded:

China would like to see us lose our status as a reserve currency but I think the biggest threat is from within by allowing our spending to get out of control. That’s the path that we’re on now. We need to see it back under control.

Do you think the U.S. dollar will lose its status as the world’s reserve currency? And, do you agree that the biggest threat to the USD comes from within? Let us know in the comments section below.

Kevin Helms

A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.