The International Monetary Fund’s recently released Currency Composition of Official Foreign Exchange Reserves (COFER) report suggests global finance could be at the cusp of a paradigm shift away from the U.S. dollar. With the rise of rival currencies such as the euro and China’s yuan poised to go digital, the USD’s dominance could dim even more in the years to come, analysts say.
Central bank digital currencies (CBDCs) must compete with two obstacles to successfully challenge the USD, however: rivalry from private cryptocurrencies as stores of value against inflation, and regulatory uncertainty regarding implementation.
New lows for the dollar
In Q4 of 2020, global reserves of the U.S. dollar sunk to a 25-year record low of 59%, according to the IMF report. USD last dipped below 60% in 1995.
“Some analysts say this partly reflects the declining role of the US dollar in the global economy, in the…