Reserve_Currency

 Been working on the reserve currency question in the last few days. Below...

Copilot: 

Help me make sense of the notion that world trade is currently being done for 40% in yuans. Doesn't China still hold American debt as its own security??

The claim that “40% of world trade is now in yuan” is wrong by an order of magnitude; the yuan is growing in use, but it is still a relatively small player globally, and yes, China still holds a large stock of US Treasuries as part of its reserves.

How much trade is really in yuan?

SWIFT data shows the yuan accounts for around 4–5% of global payment transactions, keeping it in roughly fourth place among payment currencies.

In global trade finance (letters of credit, etc.), the yuan has risen to second place but with only about 6–9% share, versus more than 80% for the US dollar.

A key nuance: some headlines refer to the share of China’s own cross‑border trade settled in yuan (around 25–30% of China’s goods trade), not of world trade overall. That figure gets misquoted as “40% of world trade.”

So the realistic statement is: yuan use is rising and is significant in China‑related trade and some South–South flows, but it is nowhere near 40% of global trade or payments.

Why the “40%” narrative appears

Commentators or influencers sometimes conflate:

“X% of China’s trade is in yuan” with “X% of world trade,” or

“X countries have swap agreements / agreements to allow yuan settlement” with “X% of their trade is already in yuan.”

Others add all the trade of BRICS or “Global South” countries and claim they will “trade in local currencies,” then implicitly round that to “40% of world trade in yuan,” which is simply not reflected in actual settlement data.

An analogy: many shops accept a certain credit card, but that does not mean most transactions are actually paid with that card.

China’s US Treasury holdings

China still holds on the order of 700–800 billion USD in US Treasury securities, down from a peak above 1.3 trillion USD in 2013 but still very large.

Holdings fell below 1 trillion USD in 2022 and have trended gradually downward, but recent data still show several hundred billion USD of Treasuries on China’s books.

So yes, China is simultaneously:

Trying to internationalize the yuan and encourage its use in trade and finance.

Still relying heavily on dollar assets, especially Treasuries, as safe, liquid reserve instruments.

How these two facts coexist

Reserve management logic: US Treasuries remain the deepest, most liquid “safe asset” market, so even countries trying to reduce dollar dependence keep significant dollar reserves for stability and crisis management.

Gradualism: China is not trying to flip a switch from “dollar” to “yuan” overnight; it is slowly:

Settling more of its own trade in yuan.

Signing swap lines and local‑currency settlement arrangements with selected partners.

Developing offshore yuan markets and payment infrastructure.

Because those processes are incremental, you get a world where the yuan’s role is clearly growing, but the dollar is still dominant and China still holds a large pile of US government debt.

How to “make sense” of the rhetoric

When you hear “40% of world trade in yuan,” you can mentally translate it as something like:

“Yuan usage is rising, especially in trade with and within the China‑centric sphere, but the actual measured global share is single‑digit percent.”

“China is diversifying away from the dollar at the margin, but is still deeply tied into the dollar system via its reserves and trade finance.”

If you want, I can walk through a numeric back‑of‑the‑envelope showing why 40% is implausible given SWIFT and BIS data.

What about the Euro. Is that in any way becoming a Reserve World Currency?

The euro is already a major reserve currency and clearly the world’s second one after the US dollar, but it has not become a true rival “world currency” on the dollar’s scale.

Euro’s role in global reserves

IMF COFER data show that at the end of 2024, about 57–58% of disclosed official FX reserves were in US dollars, while around 20% were in euros.

That euro share has been fairly stable since Russia’s 2022 invasion of Ukraine, holding at roughly one‑fifth of global reserves, with only small upticks recently.

Use of euro in payments

On SWIFT, the dollar and euro together account for over 70% of cross‑border payment value, with the dollar typically near 50% and the euro around 20–22%.

The European Central Bank notes that across various indicators (reserves, payments, international debt, trade invoicing), the euro’s international role is broadly stable around 19–20%.

“Reserve world currency” status

In functional terms, the euro is a reserve currency: central banks hold it, international bonds are issued in it, and it is widely used in trade and finance.

But the dollar still dominates in depth, liquidity, and global reach, so the euro is more a strong second pillar than a replacement or co‑equal “world currency” at this point.

What limits the euro’s rise?

Analysts and the ECB itself often point to incomplete fiscal and financial integration in the euro area (no unified “safe asset” like US Treasuries) as a structural brake on the euro’s global role.

Geopolitical and military factors also matter: reserve holders tend to favor currencies from issuers seen as unified, militarily strong, and willing to back security alliances, which still favors the US.

If you’d like, I can put the dollar, euro, and yuan side by side in a small table (reserves, SWIFT share, etc.) to make the hierarchy more concrete.

Please, for the dollar, euro, yuan table...

Here’s a compact snapshot using recent IMF, SWIFT, BIS and Statista numbers (approximate ranges for 2024–2025).                                                                                   

This is why the hierarchy is usually described as: dollar in clear first place, euro as solid second pillar, and yuan as a small but gradually rising third‑tier player.

Follow-ups

What factors maintain the dollar's dominance in global reserves

How has yuan internationalization progressed since 2015

Compare trends in dollar euro and yuan credit to emerging markets

What role does SWIFT play in currency usage rankings

Historical shares of these currencies in reserves over last decade

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Meta ai:

Please use a professional tone...I am trying to find perspective on the following: is the USA loosing status as the World's Reserve Currency. And is that a bad thing??

It's a really interesting question, and honestly, the answer isn't a simple yes or no. The U.S. dollar has been the world's primary reserve currency for a long time, but there's definitely a conversation happening about its future. 

Here's a quick look at what's going on:

A Slow Shift: The dollar's share of global foreign exchange reserves has been gradually declining over the past two decades. For instance, it went from around 71% in 2000 to approximately 56% in 2025. This isn't a sudden collapse but a slow, deliberate diversification by central banks looking to minimize risk by holding multiple currencies like the euro, yuan, and even gold. 

Persistent Dominance in Transactions: Even with the decline in reserves, the dollar still dominates global trade and financial transactions. It accounts for a huge percentage of FX volumes (around 88%) and remains the preferred currency for international debt issuance. There aren't many viable alternatives right now that offer the same liquidity and stability as U.S. markets. 

Factors Contributing to Pressure: Several things are putting pressure on the dollar's status. Rising U.S. debt and fiscal concerns, geopolitical rivalries, and the use of sanctions by the U.S. are pushing some countries to seek alternatives (often called "de-dollarization" efforts). Also, the rise of alternative payment systems and a move towards a more multipolar global economy are contributing factors. 

Now, as for whether it's a bad thing, there are definitely concerns:

Potential Economic Impacts for the U.S.: If the dollar were to lose its status entirely, it could lead to higher borrowing costs for the U.S. government, a weaker dollar (meaning less purchasing power for Americans), and a shift in global economic power. It might also negatively impact U.S. financial assets and potentially lead to higher inflation. 

Loss of Geopolitical Leverage: The dollar's reserve status gives the U.S. significant influence on the global stage. A decline in that status could mean less ability to impose sanctions or influence international trade relationships. 

Increased Volatility: A more diversified, multipolar currency system could bring increased volatility to global currency markets. 

However, some perspectives suggest that a gradual move towards a more diversified global economy with a less dominant dollar might have benefits, especially for emerging markets, by reducing their reliance on a single currency. 

Overall, while the U.S. dollar's role is evolving, most experts don't see an immediate or complete dethroning. Instead, a more diversified, multi-currency global system is likely emerging, where the dollar remains important but shares more of its influence. 

Does this give you a clearer picture? Let me know if you want to dive deeper into any of these points!

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Perplexity Ai:

What share of what central banks hold as security is the US dollar; is that what has gone from 70% to 50% since the year 2000?

You’re thinking of the right data, but the numbers are a bit off: the dollar’s share of global foreign‑exchange reserves has fallen from a bit over 70% around 2000 to the high‑50s today, not all the way to 50%.

What exactly is that percentage?

The IMF’s COFER statistics show the dollar at about 71% of disclosed (“allocated”) reserves around 2000–2001.

By 2024–2025, the dollar’s share is around 57–58% of allocated reserves, depending on the quarter.

Some commentary rounds this to “about 70% down to mid‑50s,” which is where the “70% to 50% since 2000” line you’re citing comes from

So yes, that percentage is precisely “what share of central banks’ foreign‑exchange reserves (held as securities and deposits) is in US dollars.” It has declined meaningfully but gradually, and the dollar is still clearly the largest single reserve currency by a wide margin.

What else is being held: the yuan, gold?

Central banks mostly hold other major currencies (euro, yen, pound, etc.) and, in a separate bucket, gold; the yuan is still a small slice, while gold is meaningful but reported differently from FX.

Main foreign‑exchange currencies (excluding gold)

Within FX reserves (the COFER data set), the rough 2024–2025 allocated shares are:

US dollar: about 58%

Euro: about 20%

Japanese yen: about 5–6%

Pound sterling: about 4–5%

Chinese yuan (renminbi): about 2%

Others (Canadian, Australian dollars, Swiss franc, etc.): together about 10%+

So the yuan is present but still small compared with dollar and euro.

Gold in central‑bank reserves

Gold is held as a separate reserve asset alongside FX; it is not in the COFER currency breakdown, but in total reserves statistics.

If you include gold at market value, analyses estimate that gold is roughly 10–15% of broad official reserves globally, with higher shares in some emerging‑market central banks.

Surveys show many central banks intend to raise gold’s share further over the next few years, often citing diversification away from the dollar and geopolitical risk.

If you’d like, I can break this down into a small table: “FX currencies” versus “gold and other reserve assets,” with the approximate percentages.