Written by: Bojan Pravica, founder of Elementum
In previous articles, we analyzed why gold is returning to central bank vaults and why this process is primarily driven by countries outside the Western monetary core. The logical continuation of this story is a question that cannot be avoided: what is happening to the dollar in the meantime?
The dollar remains the central currency of the global financial system. Most international trade is still denominated in dollars, most financial instruments are tied to it, as is most crisis liquidity. But at the same time, there is a less visible but long-term crucial indicator pointing to a change: the share of the dollar in global foreign exchange reserves is gradually decreasing and is today at its lowest in approximately three decades.
This is not a dramatic collapse. But it is a very clear signal.
What is COFER and why is this data important
COFER (Currency Composition of Official Foreign Exchange Reserves) is an International Monetary Fund database that aggregates central bank reports on the currency composition of their foreign exchange reserves. It is one of the few global sources that provides insight into how countries actually think about the long-term security of their reserves.
It is important to emphasize: COFER does not measure trading, it does not measure settlements, and it does not measure short-term capital flows. It measures something fundamentally more basic – how central banks store national wealth.
COFER data is based on voluntary reporting. Not all countries report, not all report in full, and not always in the same detail. Nevertheless, the database covers a large part of global reserves and allows for reliable trend analysis.
However, it is important to understand the limitations:
- gold is not included as a currency,
- part of the reserves remains undisclosed,
- some shifts appear with a delay.
COFER is therefore not a photograph, but an X-ray image. It doesn’t show everything, but it shows enough for us to understand the direction.
Since the beginning of the new millennium, the dollar’s share has been slowly but steadily falling. This decline has not been uniform and has not always been obvious, but the trend is clear.
It is important to understand that this process is not linked to a single crisis or a single political decision. It is the cumulative effect of several factors:
- growth of public debt,
- recurring financial crises,
- expansion of monetary experiments,
- and geopolitical tensions.
Each individual event is not decisive on its own. Together, however, they change the perception of risk.
Since the beginning of the new millennium, the dollar’s share has been slowly but steadily falling. This decline has not been uniform and has not always been obvious, but the trend is clear.
It is important to understand that this process is not linked to a single crisis or a single political decision. It is the cumulative effect of several factors:
- growth of public debt,
- recurring financial crises,
- expansion of monetary experiments,
- and geopolitical tensions.
Each individual event is not decisive on its own. Together, however, they change the perception of risk.
The term ’30-year low’ often sounds dramatic, but it must be interpreted correctly. It does not mean the dollar is losing its function. It means that central banks today hold a **smaller share** of their reserves in dollars than at any time since the mid-1990s.
This is the difference between absolute dominance and relative dominance. The dollar remains the largest, but it is no longer as dominant as it once was.
The decline in the dollar’s share is not globally symmetrical. It is most pronounced in developing countries and countries outside the Western political circle. Western central banks, especially those with deep financial ties to the US, change their reserve structures much more slowly.
This confirms the key thesis of the series: changes are not led by the countries that control the system, but by those exposed to it.
Transactional vs. reserve role of the dollar
One of the most common mistakes in discussions about the dollar is confusing two different functions:
- transactional role (use in trade, finance, settlements),
- reserve role (storing value over time).
The dollar is still almost irreplaceable in the first role. In the second, however, it faces gradual competition. This distinction is key to understanding why the dollar is not ‘in danger’, but at the same time is no longer untouchable.
Where reserves are moving
COFER data shows that reserves are not moving into a single alternative. There is no new ‘replacement for the dollar’. Instead, we see:
- gradual growth of the euro (with limitations),
- growth of smaller regional currencies,
- and outside the COFER system – growth of gold.
It is about deconcentration, not replacement.
Why the West does not change reserve structure quickly
Western central banks have a different risk profile. Their currencies are part of the system they shape themselves. Therefore, they do not have the same need for protection from their own jurisdiction.
This does not mean that risks do not exist, but that they are perceived differently.
Sanctions as a catalyst, not a cause
Financial sanctions are often presented as the main reason for changes in reserve policy. In reality, they are a catalyst, not the fundamental cause.
Sanctions merely made something visible: they showed that reserve assets are not politically neutral. This realization can no longer be ‘unseen’.
Why this is not a system collapse
We often hear the term ‘de-dollarization’, but in most cases, it is misleading. The system is not falling apart, it is adapting.
Instead of one center, multiple anchors are emerging. This increases complexity but simultaneously reduces systemic vulnerability.
What COFER data does not tell us
- how quickly the system would respond in a crisis,
- what the actual liquidity of alternatives is,
- or how markets would behave in extreme scenarios.
Therefore, it is important to read this data as part of a larger mosaic, not as a standalone answer.
Economist Barry Eichengreen, author of the book Exorbitant Privilege, summarized the long-term dynamics of reserve currencies as follows:
“Reserve currencies rarely collapse suddenly. They usually lose share slowly – and only from a distance does it become clear how large the shift was.”
Conclusion
IMF COFER data does not predict the collapse of the dollar. It predicts the end of its self-evidence. The world is not moving away from the dollar because it rejects it, but because it wants to reduce risk concentration.
In this sense, the decline in the dollar’s share in reserves is less a story of weakness and more a story of adaptation. A system that does not adapt breaks. A system that adapts survives – in an altered form.
In the next article, we will look at why financial sanctions have become a key trigger for changes in reserve policy and why gold has become the only truly ‘unfreezable’ asset in this environment.