LONDON (Reuters) - Changes in the size of a loosely defined global “dollar zone” could lead to faster than expected shifts in the composition of world currency reserves, potentially eroding the role of the U.S. unit, said a study published on Sunday.
The study, part of a quarterly review by the Bank for International Settlements, argues the dollar’s domination of reserves stems chiefly from the extent to which many currencies are tied either formally or through trade links like a dependency on oil or other dollar-priced commodities.
As a result, while the dollar’s overall value has declined by 18 percent since the 1970s against major currencies, and by more than half against the euro and yen, its share of reserves has fallen just 5 percentage points from 66 percent to 61 percent.
The findings suggest that China’s rapid growth, even if accompanied by the development of money and bond markets and a free float of the renminbi, might not be enough for the currency to eclipse the dollar in official reserve holdings.
“By contrast, if the renminbi at some point showed substantial independent movement against the major currencies and if its neighbors’ and trading partners’ currencies shared that movement, then it might be said that ‘the renminbi bloc is here’,” the paper said.
Reporting by Patrick Graham; Editing by Tom Heneghan