Eva Szalley from London and Colby Smith from New York
The US dollar has long dominated the markets and financing activities in the world, but cracks are emerging in the wall.
The reality is that the role of the dollar is enormous for official financing activities and global trade, so that role is unlikely to fade quickly, despite this rift.
The latest data from the International Monetary Fund regarding the reserves of central banks around the world shows a slight shift from the acquisition of the dollar.
Market analysts explain that it may be referring to a rethinking of the political risks inherent in US assets.
Alan Ruskin, chief global strategist at Deutsche Bank in New York, said: "Central banks are beginning to reduce the excessive privilege of the dollar.
In a quarterly report last month on central bank reserves, the International Monetary Fund (IMF) said the global total dollar-denominated share was less than 62 percent in the second quarter of this year, down 0.76 percentage points from the same period last year. Reserves denominated in euros represent 20 percent.
While the pace of decline is small, the apparent flexibility is not without deception.
According to Ruskin, the dollar this quarter was the currency with the highest return on investment in the developed world.
Theoretically, this should have tempted investment at a faster pace, with the acquisition and employment of other currencies.
Instead, central bank reserves managers - a formidable force in global markets - have raised $ 3.5 percent more in dollars over the course of the year, a level far from gains of 17 percent for the renminbi, the Chinese currency, and 8 percent for sterling. Although the British peg was influenced by Brexit problems.
By contrast, the decline in the dollar's share of the world's central banks' reserves represents a "formal sector vote against American exceptionalism" - Ruskin said.
In his view, the data should be given a pause, especially as US monetary policymakers are considering enacting laws that impose taxes on foreign purchases of US assets, further sanctions on the global use of the dollar, as well as plans restricting access to US capital markets.
All of these actions would weaken the dollar's impact.
Bank of England Governor Mark Carney warned monetary policy makers in August that the dollar was above its prestigious position, too, adding the dominant currency to global trade billing and settlement operations.
This is what makes economic developments in the United States the main driver of monetary policy, in other parts of the world, especially emerging markets.
He noted Carney, that in the long term, should the central banks to move to a "multi-polar" economic system, adding that "the renminbi has a long way before it is ready for solutions to the dollar store, the basic Elements to play that role, latent in it." Goldman Sachs analysts said the dollar reserves fell about four percentage points in 2017 and 2018.
At the same time, reserve managers continued to add to their holdings of the renminbi and the Japanese yen, especially in countries that were politically tense with the United States.
“So far, these flows have been somewhat concentrated,” said Mike Cahill, an economist at Goldman Sachs in London. Russia accounted for about 70 percent of the new renminbi reserves in 2018, while Brazil and Chile together accounted for about 40 percent of Total renminbi reserves in 2019. "
The US has increasingly used dollar dominance to strengthen its foreign and trade policies.
In response, ideas such as billing as part of the global oil trade in euros have become more effective.
Claudio Borio, head of the monetary and economic division of the Bank for International Settlements, the central bank, suggested in a speech earlier this year that moving and settling oil trade to the euro away from the dollar could "limit the scope of US foreign policy, as far as they benefit from the dollar payments. "
Russia has also made concerted efforts over the past five years to move away from the US currency as a currency for trade and payments, to lessen the impact of a stronger dollar on its economy.
Dmitry Dolgin, an economist at ING Bank in Moscow, said there were "clear signs" in the first quarter of rising euro-denominated exports from Russia to the EU and China, and ruble-based exports to India.
But central banks face a difficult choice. Neither the euro nor the renminbi have the deep liquidity offered by the dollar markets. Eurozone government bond yields are also very negative, while the renminbi remains under the control of the Chinese government, despite its recent liberalization efforts.
Some reserve managers turned to gold. A report by the World Gold Council and the OMFIF think tank in September showed that central banks were buying yellow metal at high levels, last seen during the Bretton Woods era, when international exchange rates were tied to gold.
China, Russia, and India were the biggest buyers of gold alongside Turkey and Kazakhstan.
China alone has added about 100 tons of gold to its reserves over the past 10 months.
Ruskin said: "When you look at it in terms of the future of the duration ranged between one and two years, it is unlikely to be able to any assets denominated in any other currency, grab the throne of the dollar.