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At the end of Q4 2021, the U.S. dollar’s share of global foreign-exchange reserves stood at 59%, at a two-decade low. 

The fall in the share of U.S. dollar reserves held by central banks has not been accompanied by an increase in the shares of other traditional reserve currencies, namely the euro, pound sterling and the yen. Rather, it has been matched by an increase in the share of nontraditional reserve currencies, such as the Australian dollar, Canadian dollar, Chinese renminbi, Korean won, Singapore dollar and Swedish krona.

The possible reasons may be that:
1) Nontraditional currencies combine higher returns with relatively lower volatility.
2) New Fintech makes it cheaper and easier to trade the currencies of smaller economies.

For example - the Bank of Israel will be reducing its share of U.S dollars from 66.5% in 2021 to 61% in 2022. Similarly, it will also reduce 'Euro' holdings from 30.8% to 20%, as it plans to add four new currencies, including the Australian dollar, Canadian dollar, Chinese renminbi and Japanese yen.

 

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