The International Monetary Fund released a report that shows the U.S. dollar’s status as the world’s reserve currency is fast shrinking, especially in the last 20 years. The shrinkage is not coming from the rise of other world currencies like the yuan but from the rise of cryptocurrencies like Bitcoin.
In the report, IMF economists Serkan Arslanalp, Barry Eichengreen and Chima Simpson-Bell claimed “Strikingly, the reduced role of the U.S. 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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The U.S. dollar is suffering “stealth erosion,” according to the International Monetary Fund (IMF) … [+] as the Federal Reserve is gearing up for a new global liquidity cycle that could boost the bitcoin price, ethereum, XRP and other cryptocurrencies.
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“Strikingly, the reduced role of the U.S. 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,” IMF economists Serkan Arslanalp, Barry Eichengreen and Chima Simpson-Bell wrote in a report.
“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,” they wrote, pointing to “new digital financial technologies such as automatic market-making and automated liquidity management systems,” as powering that shift.
“This recent trend is all the more striking given the dollar’s strength, which indicates that private investors have moved into dollar-denominated assets,” the economists added.
Earlier this month, the Federal Reserve Bank of New York wrote a report outlining the narratives around “declining dollar shares in official reserves, and increasing roles for gold holdings by central banks,” which it says has been “inappropriately” generalized beyond “the actions of a small group of countries.”
“The Fed now admits some countries are moving to gold,” tech investor and former Coinbase chief technology officer Balaji Srinivasan posted to X, pointing to what the Fed says is a “small group” that “represents 3 billion people. So 37.5% of the world is moving away from dollars towards gold.”
The U.S. dollar decline comes as the Federal Reserve is gearing up to cut interest rates after a two-year war on inflation in the aftermath of historical Covid-era stimulus and money printing.
“Central banks around the world have already started to cut rates, which suggests a broader trend towards monetary easing,” analysts at the Bitfinex bitcoin and crypto exchange wrote in emailed comments.
Fed chair Jerome Powell this week indicated the Fed will cut rates at least once this year after the European Central Bank (ECB) moved to lower interests rates in the Eurozone earlier this month.
“It seems clear that the Bank of England and the Federal Reserve will follow suit in the coming months,” the Bitfinex analysts added. “The global liquidity cycle indicates that money supply is likely to increase, which can support asset prices, including cryptocurrencies.”
