The U.S. dollar earned about a C+ in the decade from 1999 to 2009, according to the International Monetary Fund (IMF).
The dollar’s share of allocated global reserves had declined to 62% by the end of September 2009, according to the IMF. That was down from 71% at the end of 1999.
That’s not as bad as some currency experts and economists had feared, but the trend is certainly pointed in the wrong direction for the dollar’s future as the global reserve currency.
And if the survey has a bias, it’s probably to the upside. The IMF’s report includes 140 countries, but doesn’t name any of the participants and the data quite likely doesn’t include China. (Sort of like getting a high school report card that omits a grade for the class you most need to get into college.)
The winner over the last decade has been the euro. Its share of global reserves climbed to 26% in September 2009 from 18% at the end of 1999.
If there’s good news for the dollar in the report, it’s that it lost market share over the last decade to the euro. That currency has developed a raft of confidence-shaking problems named Portugal, Italy, Ireland, Greece, and Spain over the last six months. All these countries are running budget deficits way above the 3% limit set by the rules of the European monetary union. With their economies in deep trouble, governments in those nations have limited options for closing that gap. Which has brought about credit rating downgrades and credit watch notices and fears that the European Union will have to either bail out these members or weaken its budget rules—or both.
That’s exactly the kind of crisis that makes central bankers in developing countries think twice about increasing their exposure to a currency. (One of the reasons that troubles with the euro are good for the price of gold in the long run.)
And it’s a reminder that as much as many countries don’t like being so heavily exposed to the U.S. dollar, the world doesn’t really have a good alternative. At the moment.