World Currency Reserve Allocation | Investment Series

Breakdown of the World's Currency Reserves

Based on the most recent data from the International Monetary Fund (IMF) and other sources, here is a breakdown of the world's currency reserves by percentage and amount.

As of the first quarter of 2025, total foreign exchange reserves worldwide were approximately $12.54 trillion.

The composition by percentage is as follows:

• U.S. Dollar (USD): 57.74%

• Euro (EUR): 20.06%

• Chinese Renminbi (RMB): 2.12%

• Japanese Yen (JPY): 5.82% (based on a late 2024 source, but percentage is generally stable)

• Pound Sterling (GBP): 4.73% (based on a late 2024 source, but percentage is generally stable)

• Canadian Dollar (CAD): 2.77% (based on a late 2024 source, but percentage is generally stable)

• Australian Dollar (AUD): 2.06% (based on a late 2024 source, but percentage is generally stable)

• Other currencies: The remaining percentage, which in total was about 20.10% in the first quarter of 2025 (this includes the Japanese Yen, Pound Sterling, Canadian Dollar, and Australian Dollar, as well as other currencies not listed individually).

It's important to note that these figures are subject to change quarterly due to factors like exchange rate fluctuations and new reserve allocations by central banks.

Why US Dollar is the World's Primary Reserve

The U.S. dollar's role as the world's primary reserve currency is a result of a combination of historical events and its unique economic characteristics. While its share has been slowly declining as other currencies, like the Euro and Chinese Renminbi, gain prominence, it remains dominant for several key reasons:

1. Historical Precedence and the Bretton Woods Agreement

• Post-WWII Dominance: After World War II, the United States was the world's economic superpower and held the majority of the world's gold reserves.

• The Bretton Woods System: In 1944, delegates from 44 Allied nations met in Bretton Woods, New Hampshire, and established a new global monetary system. Under this agreement, other currencies were pegged to the U.S. dollar, and the U.S. dollar itself was convertible into gold at a fixed price. This arrangement cemented the dollar as the cornerstone of the international monetary system. Even after the U.S. officially ended the dollar's convertibility to gold in 1971, its status as a reserve currency persisted due to its widespread use and the lack of a viable alternative.

  
  

2. Economic and Financial Strength

• Size of the U.S. Economy: The U.S. has the largest and most dynamic economy in the world. This gives the dollar a built-in advantage, as a massive amount of global trade and financial transactions involve U.S. goods, services, and companies.

• Deep and Liquid Financial Markets: The U.S. has the largest, deepest, and most liquid financial markets in the world. This means that U.S. dollars can be easily and quickly bought, sold, and traded without significant price fluctuations. This "liquidity" is a crucial factor for central banks that need to access or offload large amounts of currency without disrupting the market.

• Stability and Credibility: The U.S. has a long-standing reputation for political stability, a robust rule of law, and a credible, independent central bank (the Federal Reserve). This gives other nations confidence that their dollar reserves will hold their value and not be subject to sudden policy changes or political interference.

3. Network Effects and Global Use

• A "Unit of Account" for Global Trade: A significant amount of international trade, especially in key commodities like oil, is priced in U.S. dollars. This requires nations and companies to hold dollars to conduct business, creating a self-reinforcing cycle.

• Used for Debt and Investments: Many international loans and debt obligations are denominated in U.S. dollars. This is particularly true for emerging markets and developing countries, which may not have the ability to borrow in their own currencies. Holding dollar reserves helps them manage their debt payments.

• Safe Haven Status: During periods of economic or geopolitical uncertainty, investors and central banks often flock to the U.S. dollar as a "safe haven." This flight to safety increases demand for the dollar and U.S. Treasury securities, reinforcing its status as a reliable store of value.

While the U.S. dollar's dominance is often called an "exorbitant privilege" that allows the U.S. to borrow at lower interest rates and run persistent trade deficits, it also has its costs. Nonetheless, the combination of history, economic power, and institutional credibility has made the U.S. dollar the world's primary reserve currency for decades.

Reference:

https://data.imf.org/en/news/imf%20data%20brief%20jul%209

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