What’s in Your Central Bank?

Periodically rumors about the demise of the U.S. dollar crop up, often making their way through the cesspool of social media. Atlas recently came across one such claim and thought you might have as well. After looking into it, the death of the U.S. dollar has once again been greatly exaggerated. That is not to say it has the same margin of leadership it once had, but it remains the top holding of central banks internationally.

Much of the confusion appear to stem from categorization. Central banks still hold more U.S.-denominated assets than any other type. However, when those assets are broken down further, they include U.S. Treasury notes and bonds, other U.S. dollar securities, as well as dollar deposits and bank notes. So what changed? Great question. Gold has now become a larger holding on central bank balance sheets than treasury securities which are a subset of the dollar assets. This shift happened by way of central banks accumulating gold and the price of the precious metal rising.

Against the backdrop of the global economy, rumors of the dollars demise are to paraphrase Mark Twain, greatly exaggerated. The dollar may continue to lose incremental market share over time, especially if other economies grow faster than America’s. Gradual diversification however, is not the same as displacement.

Don’t mistake this note for Atlas whistling past the graveyard. There are ongoing concerns about countries like Russia, Brazil, India, and China forming a new reserve currency. That said, several reports indicate that the Kremlin has suggested it is stepping back from that idea. For now, America remains the world’s largest provider of central bank assets, but the mix is changing, especially relative to gold.