Quick summary
The share of US dollar reserves held by central banks around the world hit a 25-year low during the fourth quarter of 2020, according to the International Monetary Fund. Economists are warning the impact of the pandemic is starting to hit home on the economy.
Governments have pumped more than $16 trillion of fiscal stimulus into the global economy since the outbreak of the Covid-19 pandemic.
Key Points
- US dollar reserves held by central banks around the world hit a 25-year low
- Large fluctuations in this amount lead to swings in dollar funding conditions
- Economists are warning the impact of the pandemic is starting to hit home on the economy
Central Bank Reserves
The share of US dollar reserves held by central banks around the world hit a 25-year low during the fourth quarter of 2020, according to the International Monetary Fund. Economists are warning the impact of the pandemic is starting to hit home on the economy.
Economists Serkan Arslanalp said that “This partly reflects the declining role of the US dollar in the global economy in the face of competition from other currencies used by central banks for international transactions,” they said, citing the fund’s Currency Composition of Official Foreign Exchange Reserves survey.
US dollar assets in central bank reserves dropped to 59 per cent from 60.5 per cent in the third quarter of 2020, while the share of the euro has accounted for about 20 per cent. The share of other currencies, including the Australian dollar, Canadian dollar and Chinese renminbi, climbed to 9 per cent in the fourth quarter, IMF economists Serkan Arslanalp and Chima Simpson-Bell said on Wednesday.
Governments have pumped more than $16 trillion of fiscal stimulus into the global economy since the outbreak of the Covid-19 pandemic. The stimulus has been backed by about $9tn in monetary measures from central banks as they attempted to put a floor under a global economy that suffered its worst recession since the 1930s.
This issue matters, even more, today, when demand fluctuations in the dollar funding markets are large, the impact of the markets is significant. The dollar cash pile of the US Treasury at the central bank is at a record $1.8tn, in 2020 compared with an average of $200bn over the past 10 years.
Large fluctuations in this amount lead to swings in dollar funding conditions. An $83bn increase in the Treasury’s cash balance on September 16 last year was enough to set money markets in disarray.
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