While more than 60% of the world’s currency reserves are denominated in dollars — as they have been for over two decades — holdings of the greenback fell to the lowest since 1996 at the end of the third quarter.
Still, the uptick in appetite for Chinese assets suggests growing international comfort with the renminbi, and the nation’s economic outperformance is likely to drive further use — even if the greenback remains the dominant currency for trade, capital markets and reserves for some years to come.
The dollar’s demise as the world’s reserve currency has been idly speculated on and predicted for years, of course.
That divergence — which led to the greenback’s worst performance since 2017 as the yuan advanced — has bolstered China’s tilt at dollar hegemony, with investors flocking to onshore assets, trying out the renminbi for trade, and even giving it another look as a reserve currency.
China’s light-speed recovery from the pandemic has reignited the perennial debate about how long the U.S. dollar’s 50-year dominance of global markets can persist.