Global reserves shift away from the dollar amid historic decline

The dollar now accounts for just 57.8% of global reserves, valued at approximately $12.36 trillion—a 0.6% drop from the previous year. For context, in 2000, the dollar's share peaked at around 70%.

Gold Emerges as a Key Alternative

As central banks seek to diversify their reserve holdings, gold has become a favoured alternative. Unlike the dollar, gold is not subject to control by any single government. This shift has been fueled, in part, by geopolitical tensions and the use of the dollar-based financial system as a tool of economic pressure by the United States.

A notable example is Russia, which saw several of its major banks cut off from the SWIFT payment network following its invasion of Ukraine in 2022. In response, Russia has nearly doubled its gold reserves over the past decade. Today, the country holds approximately 2,300 tonnes of gold, accounting for 32% of its total foreign reserves, according to the World Gold Council.

Kiyotaka Sato, an economics professor at Yokohama National University, noted that countries at odds with the West appear to be actively working on building alternative settlement systems using non-dollar currencies.

Trump’s Return Rekindles De-dollarisation Concerns

The possibility of a return to aggressive US foreign and economic policies under President Donald Trump has reignited concerns over global overdependence on the dollar. Keiichi Iguchi, an analyst at Resona Holdings, warned that markets are increasingly nervous about the dollar’s long-term dominance in the global financial system.

The Yen Gains Ground in Global Reserves

Amid the dollar’s decline, Japan’s yen has quietly been gaining favour among reserve managers. The yen’s share in global reserves has now risen for three consecutive years, reaching 5.82%—a significant increase from under 3% in 2009.

One reason behind the yen's growing appeal is Japan's recent shift away from a zero-interest-rate policy. As the Bank of Japan raises rates, yields on Japanese government bonds have become more attractive, prompting countries to consider holding more yen in their reserves.

Akira Moroga, chief analyst at Aozora Bank, suggested that Trump's combative stance—even toward allies—could encourage some nations to reduce their dollar exposure and increase their holdings of the yen as a form of risk hedging.

Asia’s Growing Reserve Power and China's Central Role

Nearly half of the world’s foreign exchange reserves are now concentrated in Asia. China alone holds approximately one-quarter of the global total, with $3.45 trillion in reserves as of last year. This central role has placed Beijing under close observation as a bellwether for global financial shifts.

Daisuke Karakama, chief economist at Mizuho Bank, observed that there’s increasing discussion around a possible transition away from the dollar-centric system toward a more diversified global reserve structure—one that includes the euro, yen, and other major currencies.

He added that the yen could play a more prominent role in this transition, particularly due to its geographical proximity to other Asian economies and the region’s growing influence in global finance.