Demise of dollar's FX reserve omnipotence greatly exaggerated: McGeever
ORLANDO, Florida -After two decades of the dollar's share of global foreign exchange reserves gradually eroding to less than 60%, economic, financial and geopolitical stars are aligning to halt that trend in the next few years and possibly even reverse it.
That's two and a half times more than the second-highest currency, the euro, which a net 7% of respondents plan to increase exposure to. On top of that, cyclical factors are increasingly playing into the dollar's favor - U.S. economic growth and rates of return relative to global peers are high and look likely to remain so over the next couple of years.
"For the dollar share to fall, another currency's share has to rise. Then you have to question, which one? Which of the others is a truly global currency," said Hiro Ito, professor of economics at Portland State University and a renowned authority on global FX reserves and capital flows. Equally, if freezing Chinese assets abroad is a possibility, will countries in Asia - or anywhere, for that matter - want to be exposed to the renminbi? That's before China's capital controls are even taken into account.A New York Fed paper in March found that countries that are more politically distant from the United States, and perhaps more likely to be subject to financial sanctions, tend to have a higher dollar share in official reserves, all else equal.
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