Dollar's record low FX reserves share not all bad news for Trump: McGeever
ORLANDO, Florida - In January, U.S. President Donald Trump warned the so-called BRICS nations against replacing, or backing any currency to take the place of, the "mighty U.S. dollar."
While the International Monetary Fund's latest foreign exchange reserves data for the fourth quarter of last year suggests central banks around the world continue to pull away from the greenback, there may be a silver lining for the president.
The IMF's Currency Composition of Official Foreign Exchange Reserves (Cofer) data, the gold standard for FX reserves information, show that countries have been gradually chipping away at their dollar holdings and diversifying for years.
Indeed, the greenback's nominal share of official FX reserve holdings in the third quarter of last year fell to a record low 57.3% from over 72.0% in 2001.
That crept up slightly to 57.8% in the fourth quarter, a rare rise, but the dollar surged 7.6% against a basket of major currencies in the period, its biggest quarterly appreciation in nearly a decade. All else equal, this reduces the dollar-value of reserves held in non-dollar currencies such as the euro, sterling, or Japanese yen.
When adjusting for these FX changes, the dollar's share of reserves slid to a record low of 54.1% from 55.3%, according to Goldman Sachs. At the start of the millennium, that share was over 71%.
Importantly, the Cofer figures only go up to December 31, so do not take into account any reserve shifts made amid the historically high policy uncertainty and market ructions of recent months.
With military, diplomatic and trade ties going back decades now fraying at an alarming rate, reserve managers are bound to be rethinking their FX allocations. And that is unlikely to involve a sudden re-discovered love for the dollar.
STILL NUMBER ONE
Reserve managers do not typically make knee-jerk reactions to market gyrations or the headlines du jour. They're a cautious breed, prioritizing liquidity, stability and long-termism over yield, opportunity and a fast buck.
But further diversification of their FX reserves can hardly be considered an impulsive reaction, as the trend is pretty well entrenched. The emergence of any new world order in the coming years would likely only strengthen it.
No matter how you slice it, the dollar's overwhelming dominance in global FX reserves is weakening. But that doesn't mean the greenback's place as the world's preeminent reserve currency is under threat.
Its share is not being eaten up by its nearest rival, the euro, but by a bunch of smaller, "nontraditional" reserve currencies such as the Korean won, Australian and Canadian dollars, and China's renminbi.
"It's not just diversification out of the dollar. Euro reserve holdings have fallen in nominal and valuation-adjusted terms as well," notes Goldman's Michael Cahill.
This is a trend that has been underway for years, taking hold just after the Global Financial Crisis and accelerating again after the pandemic.
The Cofer data shows the aggregate share of "nontraditional" currencies in central banks' FX reserves was 12.6% in December, just off September's record high of 12.7%. Before 2009, that share had never exceeded 3%.
The euro's share since its launch more than 25 years ago has never fallen below 19% and only once, in late 2020, has it exceeded 21%. Any reduction in the difference between the dollar and euro shares has been caused by reserve managers shunning the greenback rather than taking a shine to the euro.
Their preference to build up holdings of several smaller currencies has created a somewhat curious equilibrium. The dollar is seeing its dominance gradually diminish, but it's in little danger of losing its role as the world's sole reserve currency.
Trump, who seems to want the dollar to remain dominant while no longer sucking in so much of the world's savings, may be happy with that.
(The opinions expressed here are those of the author, a columnist for Reuters.)
(By Jamie McGeever;)
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Zawya
20 minutes ago
- Zawya
Oil steadies on potential Trump-Putin meeting in coming days
Oil prices steadied on Thursday, paring early gains after the Kremlin announced that Russian President Vladimir Putin will meet U.S. President Donald Trump in the coming days, raising expectations for a diplomatic end to the war in Ukraine. Brent crude futures were up 21 cents, or 0.3%, at $67.1 a barrel by 0902 GMT while U.S. West Texas Intermediate crude gained 20 cents, or 0.3%, to $64.55. Both benchmarks slid about 1% on Wednesday, touching their lowest in eight weeks, after comments from Trump on progress in talks with Moscow. Kremlin aide Yuri Ushakov said on Thursday that Trump and Putin will meet in the coming days in what would be the first summit between leaders of the two countries since 2021. A White House official had previously said that Trump could meet Putin as soon as next week, though the U.S. continued preparations to impose secondary sanctions, potentially including China, to pressure Moscow to end the war in Ukraine. Oil is modestly up, benefiting from a crude draw in the U.S., higher Saudi prices for Asia and solid Chinese crude imports in July, said UBS analyst Giovanni Staunovo, adding that gains were curbed by news of the potential Trump-Putin meeting next week. Russia is the world's second-biggest producer of oil behind the United States. The Energy Information Administration said on Wednesday that U.S. crude oil stockpiles fell by 3 million barrels to 423.7 million barrels in the week ended August 1, exceeding an expected decline of 591,000 barrels in a Reuters poll of analysts. In China, crude oil imports in July dipped 5.4% from June but were still up 11.5% year on year, with analysts expecting refining activity to remain firm in the near term. Saudi Arabia, the world's biggest oil exporter, on Wednesday raised its September crude oil prices for Asian buyers, the second monthly rise in a row, on tight supply and robust demand. Global macroeconomic uncertainty capped price gains, however, after the U.S. ordered a fresh set of tariffs on Indian goods. Trump imposed an additional 25% tariff on Indian goods on Wednesday, citing the country's continued imports of Russian oil. The new import tax will take effect on August 28. Trump also said he could announce further tariffs on China.
Zawya
20 minutes ago
- Zawya
Low global diesel supplies support crude prices despite OPEC+ boost
Low diesel stockpiles worldwide are countering the downward pressure on crude oil prices from rising OPEC+ supply and setting the stage for a third consecutive year of above-normal refining profits. Diesel, the top component of global fuel demand, has been the lone bright spot in an otherwise lackluster oil market this year as refinery closures and a shortage of crude with higher diesel yields have kept inventories below historical norms, analysts said. Meanwhile, demand for the industrial and transportation fuel has been unexpectedly strong because of resilient manufacturing activity and cooling demand due to heatwaves in parts of the world. Tight stocks of diesel have also helped support global oil prices, allowing the Organization of the Petroleum Exporting Countries and its allies to unwind their largest tranche of output cuts months ahead of target, and could justify further supply hikes under discussion. Global benchmark Brent crude futures have rebounded 15% to around $68 a barrel from this year's lows, hit in May when OPEC+ first began unwinding supply cuts. "Tight diesel inventories are providing a very strong floor to oil markets in the mid-$60 per barrel range in the short term," Natasha Kaneva, head of global commodities strategy for J.P. Morgan, told Reuters. U.S. distillate fuel inventories stood at 113 million barrels by August 1, 12% below the five-year average, according to government data. At Europe's Amsterdam, Rotterdam, Antwerp trading hub, independently-held diesel stockpiles slipped under 13 million barrels for the first time since December 2023. The tight market has been something of a surprise after analysts and fuel producers earlier this year anticipated that the opening of new refineries around the world would cause a supply glut. In the latest quarters, however, top global refiners have reported stronger-than-expected profits due to resilient margins. "If I were a trader, I would be very comfortable going long diesel in the months ahead," said Tom Kloza, an analyst for consultancy firm Turner, Mason & Co. REFINERS REJOICE BUT UNCERTAINTY AHEAD Tight stockpiles have pushed diesel refining margins higher in recent months. In the U.S., ultra-low sulfur diesel (ULSD) futures briefly traded at a $40 premium over U.S. crude futures on July 18, the highest since February 2024. The premium is now at about $31, versus the prior five-year average of $30. In Europe, diesel margins stood at $21.13 as of August 5 over Brent futures, after hitting a near one-year high of $26.31 at the end of June. Heavy maintenance activity at existing plants has also weighed on diesel supply, said Energy Aspects analyst Natalia Losada. Looking ahead, however, even more refinery closures are expected in the U.S., especially in California and Europe, and the addition of the big 650,000 bpd Dangote refinery in Nigeria has not been able to offset the reduced capacity. Lower Mexican exports and tightening U.S. sanctions on Venezuela and Russia are also set to restrict availability of medium- and heavy-sour crudes, which have a higher diesel yield, energy economist Philip Verleger said in a note. The U.S. is also pressuring China and India to stop buying oil from Moscow. Agreements underway to resolve U.S. trade disputes could exacerbate the diesel shortage by pushing Asian importers to buy more U.S. crude oil, which has a lower diesel yield, Verleger said. "The Trump administration's trade policies and sanctions will be a major contributor to the tightening market," he said. Still, before the disputes are resolved, U.S. tariffs against its trading partners could slow the global economy, hitting diesel demand, investors said. In Asia, margins have already fallen to nearly a two-month low of $17 a barrel due to softening near-term supply-demand fundamentals, giving back most of the gains recorded since the Iran-Israel conflict escalated in mid-June.
Arabian Post
22 minutes ago
- Arabian Post
Putin's Upcoming Visit to Strengthen Russia-India Ties
Russian President Vladimir Putin will visit India in the coming weeks, with expectations that the trip will significantly bolster bilateral relations across various sectors, including trade, defence, and energy. The visit, anticipated to be a key moment in Russia-India relations, will occur amid shifting geopolitical dynamics, particularly following the global attention on the ongoing war in Ukraine and its implications for international alliances. The timing of the visit is critical, as both Russia and India seek to expand their strategic cooperation. Over the past few years, both nations have deepened their partnership through numerous agreements aimed at enhancing their economic and military ties. As global power dynamics continue to shift, the Russia-India alliance has become increasingly important, not just for the two countries but also within the broader context of the BRICS grouping, of which both nations are founding members. One of the central themes of the visit will be the strengthening of economic ties, especially in the energy sector. With the ongoing energy crisis exacerbated by sanctions on Russia, India has emerged as one of the key buyers of Russian oil. The visit is expected to solidify agreements surrounding the energy trade, including the potential for India to increase its imports of Russian crude oil at discounted rates. This move is likely to provide India with a cost-effective energy source while helping Russia circumvent Western sanctions. ADVERTISEMENT Discussions are expected to focus on further cooperation in defence, where Russia has long been a major supplier of military hardware to India. The two nations are expected to advance negotiations on new defence contracts, including the potential for joint production and technology sharing. The defence ties between Russia and India date back decades, and the visit will likely see the formalisation of further agreements that could further align their military interests. The visit will also involve talks on expanding technological collaboration, particularly in the areas of space and nuclear energy. Both countries have made significant strides in these fields, and there is potential for further joint ventures, which could bring both economic and technological benefits to each nation. Putin's presence in India is expected to reinforce Moscow's commitment to its relationship with New Delhi, signalling Russia's ongoing support for India's strategic ambitions in the global arena. Putin's upcoming visit also comes at a time of heightened global tension. As the war in Ukraine continues to dominate headlines, Russia has increasingly sought to deepen ties with countries that have been less critical of its actions, including India. New Delhi has maintained a relatively neutral stance in the conflict, focusing instead on its national interests and calling for peace talks. This approach has allowed India to strengthen its ties with Russia without facing the same level of international scrutiny as some of the West. The visit is likely to be significant for the future of BRICS, a bloc of emerging economies that includes Brazil, Russia, India, China, and South Africa. The group has been exploring the possibility of expanding its membership, and Putin's visit could serve as a platform for discussing further collaboration within this framework. As BRICS nations continue to challenge the traditional Western-dominated global order, Russia and India are likely to explore ways to enhance their collective influence in international forums. While both nations have shared interests, their relationship has not been without challenges. India's growing economic ties with the West, especially in the technology and trade sectors, have sometimes created friction in its ties with Russia. However, the long-standing nature of their partnership, especially in defence, has ensured that these tensions have remained manageable. Putin's visit is expected to reinforce the idea that despite external pressures, Russia and India will continue to prioritise their strategic interests.
