Global Currency Trends: Dollar's Dominance Eases as Alternatives Gain

Shift in Global Foreign Exchange Reserves

The US dollar's dominance in global foreign exchange reserves continued its gradual decline in Q3 2025, according to the International Monetary Fund's (IMF) Currency Composition of Official Foreign Exchange Reserves (COFER) data. The dollar's share dropped to 56.92% from 57.08% in the previous quarter. While the decrease is marginal, it reinforces the trend of diminishing dollar dominance in the global monetary system.

Rising Euro and Yen

The euro strengthened its position as the second-largest reserve currency, increasing its share to 20.33% from 20.24% in Q2 2025. This rise underscores the euro's continued appeal as a diversification tool for central banks. The Japanese yen also saw an uptick, rising to 5.82% from 5.65%, indicating growing preference for safe-haven assets amid ongoing global economic and geopolitical uncertainties.

Market Stabilization

The changes in reserve composition during Q3 2025 were relatively more stable compared to the previous quarter. The global foreign exchange market experienced significant volatility in Q2 2025 due to the announcement of US trade policies, which affected the dollar's value and led to substantial shifts in reserve compositions. However, as market sentiments stabilized in Q3, the fluctuations in currency shares became more subdued.

Implications for Global Finance

The gradual shift away from the dollar and towards other currencies like the euro and yen reflects central banks' ongoing efforts to diversify their reserves. This trend is likely driven by the need to manage risks associated with global economic uncertainties and potential currency fluctuations. As the global financial landscape continues to evolve, the composition of foreign exchange reserves is expected to remain dynamic, with implications for currency markets and international trade.