The share of the US dollar in global foreign exchange reserves has fallen to its lowest level in nearly three decades, according to the International Monetary Fund (IMF).
The IMF reported on Wednesday (October 1) that the dollar’s share of central bank reserves fell 1.5% from the first quarter to 56.3% in the second quarter of this year — its lowest level since 1995.
The IMF explained that the decline was not caused by central banks selling off the greenback, but rather by its sharp depreciation against other major currencies.
‘Dollar slide’ drags down reserve share
Researchers Glen Kwende, Erin Nephew and Carlos Sanchez-Munoz noted that exchange rate effects accounted for nearly 92% of the fall in the dollar’s share.
Because central banks report reserve holdings to the IMF in dollar terms, the weakening of the US currency means the value of other reserve currencies — such as the euro and pound sterling — rises when converted back into dollars, making the dollar’s share appear smaller.
During the second quarter, the dollar fell 9% against the euro, 11% against the Swiss franc and 6% against the pound.
Three factors weighing on the dollar
The dollar’s weakness earlier this year was driven by several pressures:
- US President Donald Trump’s tariff policies
- Trump’s repeated pressure on the US Federal Reserve to cut interest rates
- Concerns over fiscal deficits following the “One Big Beautiful Bill Act” tax law signed by Trump on July 4
Euro and pound gain from dollar slide
In contrast, the strengthening of certain currencies helped offset the shift, even without central banks increasing their holdings.
A clear example is the euro. Although central banks reduced their overall euro holdings in the second quarter, the currency’s appreciation pushed its share of global reserves up to 21% — the highest since 2021. The pound sterling also benefited in a similar way.
Still, in the vast foreign exchange market, where more than US$9.6 trillion is traded daily, central banks may not move as swiftly as hedge funds or asset managers.
However, because they hold massive foreign reserves — totalling US$12.03 trillion in the second quarter — their allocation decisions can significantly influence currency valuations worldwide.