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FxWirePro: Keep a watch over Dollar’s reserve status

As the trade battle between the United States and rest of the world, especially the European Union and China intensify, along with dispute between the EU and the U.S. over Iran nuclear agreement, and a reduction in foreign aid by the United States, to keep a check on the Dollar’s fundamental move, one needs to keep updated on Dollar’s reserve status as many analysts are forecasting a dollar demise, with one of the most prominent people being Ray Dalio, who successfully predicted the 2008 financial crisis and is the former CEO of hedge fund Bridgewater.

To keep updated on Dollar’s reserve status, one needs to keep a check on the following,

  • Use of dollars in global payments: According to latest data from Swift Payment System, in August 2018, USD was used to clear 39.7 percent of global transactions, down from its recent peak around 44 percent but still higher than Euro’s 34.1 percent, and pound 6.9 percent.
     
  • The share of USD in global reserves: In 2017, USD enjoyed a share of 62.7 percent, much higher than Euro’s 20.1 percent. This year, the share has declined; but in August, it was 62.3 percent.

Major changes in USD’s reserve share is unlikely without significant selloff in U.S. Treasury holdings by other countries like China and Japan.

  • Both China and Japan have been reducing treasury holdings but that it still not significant. According to the latest data from the treasury department, as of September 2018, China is holding $1.15 trillion worth of treasury assets, which is just $31 billion less from a year ago and Japan is holding $1.03 trillion worth of treasury bonds and bills, which is $68 billion less than a year ago.

Currently, we do not see major threats to USD’s reserve status but we would urge readers to keep a regular watch on the above-mentioned factors.

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