IMF reports rise of non-traditional reserve currencies…Bitcoin?

On March 24, 2022 — the IMF published a paper, ‘The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Non-traditional Reserve Currencies”.

The paper looked at the ‘Stealth Erosion’ of USD as a reserve asset and how over the past few decades the dollar is becoming a smaller and smaller part of central bank reserve currency in percentage terms.

The paper explains that central bankers typical tweak reserve currency ratios in response to interest rate or exchange rate fluctuations; and that the changes are typically made into other major currencies (EUR, YEN, CNY).

The dollar initially became the global reserve currency following the Bretten Woods agreement in 1944 where 44 countries agreed to effectively peg their currency to USD. This was primarily because the dollar was underwritten by the FED’s gold reserves — any dollar could be exchanged for an equivalent amount of gold — and it was useful for international trade.

However in the years since the dollar stopped being pegged to gold— see https://wtfhappenedin1971.com — most countries continued to use dollars as there was no other obvious alternative and because it had established itself as the preferred medium of exchange for international trade.