There are too many currencies in the basket to count
An analytical note published by the Bank of Finland confirms the growth of yuan and other "regional" components in the reserves of 64 economies around the world. However, the speed of this process and the growth of restrictions caused by the fragmentation of global finances, according to economists, do not allow us to talk about a change in leaders (the dollar and even the euro) among the means of placing savings - they see a more likely gradual entry into the baskets of reserve "regional" currencies of individual fragments of the future world economy.
A fresh analytical note from the Institute of Emerging Economies of the Bank of Finland (an organization closely monitoring the economic consequences of the Russian military operation in Ukraine) presents a fresh and extensive set of data on the structure of international reserves of 21 developed and 43 developing economies of the world and its changes. The authors (Falk Laser of Berlin's ABC Economics, Alexander Mikhailov of the University of Reading and Jan Weidner of the German Ministry of Economics) note that the recent changes in the structure of reserves were ensured by changes in the reserve policies of several large economies, and the main reserve currencies remain the US dollar, euro, Japanese yen, pound sterling and yuan. At the same time, the dollar and euro "are losing popularity as a means of placing reserves both at the global and country level, although they remain the most common instruments for this purpose," the paper says. Most countries in the sample have been reducing the shares of both currencies in reserves in recent years, replacing them, in particular, with the yuan and "other" currencies (see chart).
In addition, the new data set confirms previous observations by the IMF and the World Bank about the “fragmentation” of the global financial system and a “turn toward a multipolar monetary system.” However, the current pace of diversification of international reserves and the inertia in matters of their placement, according to the authors, allow us to assume that the US dollar will retain its leadership for many years even with the growth of the weight of other currencies in them, primarily the yuan — in particular, it is prevented from increasing its role by the inconvertibility and lack of transparency in the formation of the exchange rate, as well as the underdevelopment of Chinese capital markets and the economic pressure exerted on China by its largest trading partners.
In support of this, the authors cite calculations according to which, even when broken down by regional blocs of countries, the maximum growth in the share of the yuan in the international reserves of regions close to China — Asia and Australia and Oceania — over the past five years has not exceeded 6 percentage points, while in other regions of the world, as a rule, it has not exceeded the 2 percentage point mark. The fragmentation of the global financial system, caused by the growth of political tension after the start of the Russian military operation in Ukraine, paradoxically slows down the diversification of the structure of reserves: for example, the Russian Federation, one of their largest owners ($613.7 billion at the end of August, about a third is gold), is limited in managing the foreign exchange portion of savings due to sanctions that have “fixed” dollars and euros in arrested reserves.
In favor of the growing influence of the yuan as a reserve currency, according to the authors, is the growing role of China in the global economy - but the assumption that the Chinese currency will be able to compete with the euro as the world's second reserve currency seems unlikely to them. In order to receive the "excess privileges" of the issuer of the reserve currency, China will first have to demonstrate a long-term ability to bear "excess responsibility" - a more likely scenario seems to be the growth of the use of various "local" currencies (including the Indian rupee or the Brazilian real) as international reserve instruments, which has practically not been observed so far.
