IMF Proves the World Cannot Yet Abandon the US Dollar

The United States (US) dollar has once again demonstrated its dominance as the world’s primary reserve currency. After being steadily eroded throughout 2025, the dollar’s share of global foreign exchange reserves rose again in the first quarter of 2026. Citing the latest International Monetary Fund (IMF) report on the Currency Composition of Official Foreign Exchange Reserves (COFER), total global foreign exchange reserves fell slightly to US$13.10 trillion in Q1 2026, from US$13.15 trillion in the previous quarter. Despite the decline in total reserves, the dollar’s portion increased. The dollar’s share of global foreign exchange reserves rose to 57.13% in Q1 2026, up from 56.42% in Q4 2025. This increase is notable because the narrative of waning dollar dominance was quite strong in 2025. The dollar’s share had previously fallen to its lowest level in several decades. However, the latest IMF release shows the dollar’s position is not easily displaced. The rise in the dollar’s share this time was not entirely due to the world’s central banks buying up dollar assets on a large scale. The IMF explained that a slight strengthening of the US dollar against several major currencies was a key factor behind the increase in the dollar’s share in Q1 2026. Valuation effects from exchange rate changes accounted for about half of the increase. Thus, when the US dollar strengthens against other currencies, the value of dollar-denominated reserves automatically appears larger in global calculations. This causes the dollar’s share to rise, even if not all of the increase stems from new purchases by central banks. The increase in the dollar’s share in early 2026 does not automatically erase the larger story of de-dollarisation. In the long term, the dollar’s share of global foreign exchange reserves remains far lower than during its heyday. The US dollar is still the king of world reserve currencies, but its dominance is not as strong as it once was. Global central banks continue to diversify, whether into the euro, yuan, gold, or other previously less dominant currencies. For many central banks, foreign exchange reserves are not solely about seeking returns. Reserves also serve as a tool to maintain exchange rate stability, pay for import needs, face market turmoil, and provide a sense of security during crises. Because of this, the dollar remains difficult to replace. The US financial market is very large, its dollar instruments are highly liquid, and US Treasuries remain among the most easily traded assets in the world. The IMF made one important note. In 2025, gold indeed surpassed US Treasuries as a component of official global reserves. However, this development was mainly driven by the rise in gold prices, not solely because the world’s central banks were abandoning the dollar. The surge in gold prices boosted the value of central banks’ gold holdings. If gold prices rise sharply, the share of gold in official reserves automatically appears larger. However, this is not directly reflected in the dollar’s share in COFER, as the IMF’s COFER calculates the composition of foreign exchange reserves based on currency and does not count gold as a reserve currency like the dollar, euro, yen, or yuan. Outside of the greenback, the euro remains the world’s second-largest reserve currency. However, its share fell in Q1 2026. The IMF recorded the euro’s share of global foreign exchange reserves fell to 20.03%, from 20.38% in Q4 2025. Meanwhile, China’s yuan rose slightly again. The renminbi’s share increased to 1.99% in Q1 2026, from 1.95% in the previous quarter. The yuan’s increase is still small, and its share remains far behind the dollar and the euro. However, this movement remains important as the yuan is increasingly discussed in cross-border trade, energy transactions, and efforts by several countries to reduce dependence on the US dollar. Even so, the yuan still faces many major challenges to becoming a primary competitor to the dollar. China’s financial market is not as deep as the US market, capital controls remain a concern, and global confidence in yuan assets is not yet as high as confidence in dollar assets. Therefore, the yuan’s position in global foreign exchange reserves is still more accurately read as a diversification complement, not a replacement for the dollar in the near term. The most striking trend in Q1 2026 came from the Japanese yen. The IMF recorded the yen’s share fell from 5.84% in Q4 2025 to 5.44% in Q1 2026. This decline of 0.4 percentage points was the largest among other major currencies. The IMF explained that changes in the share of reserve currencies are not only influenced by exchange rates. There are also factors of active management by central banks, movements in bond prices, and changes in government bond yields. In Q1 2026, the yen and the Swiss franc recorded significant movements in benchmark bond yields compared to other reserve currencies. These yield changes can affect the price of bonds held by reserve managers. The share of the pound sterling and the Canadian dollar also fell slightly. The pound’s share fell by 0.01 percentage points, while the Canadian dollar fell by 0.02 percentage points. Conversely, the Australian dollar and Swiss franc rose. The Australian dollar’s share increased by 0.09 percentage points, while the Swiss franc rose by 0.02 percentage points. The group of other currencies not separately recorded by the IMF also remained quite large. In Q1 2026, their market share stood at 6.18%, down from 6.25% in Q4 2025. This decline was the first after seven consecutive quarters of increases since Q1 2024. Although down, the position remains above 6%, indicating that the diversification of global foreign exchange reserves has not truly stopped.