“De-dollarization is real and is happening fast”, began a recent widely shared video post.  “Dollar share went from 73% (2001) to 55% in (2020).  Went from 55% to 47% since sanctions launched on Russia, now de-dollarizing at 10x faster than the previous two decades.”  This video attracted the attention of no less a personage than Elon Musk, who tweeted “If you weaponize currency enough times, other countries will stop using it.”

This question is not new, as readers of VoxEU will be aware (e.g. Wyplosz 2020).  Answering it requires sober analysis, starting with the facts.  The dollar’s share of allocated foreign exchange reserves in 2022 Q4 was 58.4%, not 47%, according to the IMF’s latest Currency Composition of Official Foreign Exchange Reserves (COFER) database.  This was virtually unchanged from 58.5% in 2021 Q4, the latest COFER reading prior to G7 financial sanctions on Russia.

Sceptics object that these data are distorted by exchange rate changes.  The dollar strengthened through the first three quarters of 2022, which could have pushed up the value of dollar reserves and the currency’s share in reserve portfolios. 

But central banks rebalance their reserve portfolios in response to exchange rate changes, which limits the impact of valuations on shares.  Figure 1 therefore compares reported COFER shares with exchange rate-adjusted shares. 

A decline in the dollar’s share is evident in the exchange rate-adjusted data, from 59% in 2021 Q4 to 57% Q2022 Q4.  But a decline is not a collapse.  As Figure 1 shows, the dollar’s share of allocated reserves, exchange-rate adjusted, has been falling by 6/10ths of a percentage point a year, on average, since 1999.  The 2 percentage-point drop from 2021 Q4 to 2022 Q4 is three times this large.  But equally large drops have occurred before, in 2002, 2005, 2010, and 2015, to cite some examples. ...

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