Chart of the Day: Bank of Israel Begins the Dollar Reserve Currency Status Flight – More to Follow?

Bloomberg recently reported that “Israel’s central bank has made the biggest changes to its allocation of reserves in over a decade, adding the Chinese yuan alongside three other currencies to a stockpile that last year exceeded $200 billion for the first time ever.”

The report read:

Starting this year, the currency mix will expand from the trio of the U.S. dollar, the euro, and the British pound to include the Canadian and Australian dollars as well as the yen and the yuan, which is also known as the renminbi. The additions mark a change in the Bank of Israel’s “whole investment guidelines and philosophy,” Deputy Governor Andrew Abir said in an interview.

Following discussions held by the monetary committee last year, the pound and the yen will account for 5%, and the currencies of Canada and Australia will have 3.5% each. Under the new approach, the yuan’s proportion is set at 2% for 2022, according to the Israeli central bank’s annual report published at the end of last month.

To accommodate the changes, the euro’s share will fall to 20% — the lowest in at least a decade — from just over 30%, while the dollar will account for 61%, down from 66.5%. The pound’s weighting, by contrast, will almost double to 5%, returning to a level last seen in 2011.

The “dramatic” rise in Israel’s foreign-exchange reserves led the central bank to lengthen its investment horizon, Abir said. “We look at the need to earn a return on the reserves that will cover the costs of liability.”

See in the chart the new Israel Central Bank’s policy change.

Many folks quickly picked up on this report and proclaimed the global Dollar reserve currency status is ending in favor of China’s Renminbi. But here are a few takeaways from this report in terms of winners and losers and the idea that the Dollar will maintain its reserve status.

  • China’s Renminbi will get a boost – but it’s not huge. However, it does not come without risks – see here potential devaluation fears.
  • The biggest loser is the Euro, indicating the faith central banks may have in the future of the Eurozone project. Issues in the Eurozone, due to its size, could pose one of the largest issues in the FX reserve status of currencies around the world – a full-scale European war concerning Ukraine won’t help.
  • The other currencies (Japanese Yen, British Pound, Australian Dollar, and Candian Dollar) are mere hedges and do not indicate faith in these countries either. For example, the Japanese Yen is facing its own currency crisis – see here.
  • The Dollar, as the world’s reserve currency, is losing its shine, but there are few alternatives in terms of “stability” and size. The loss of reserve status in the short run would require a catastrophic event. Otherwise, this losing reserve status will take years, even decades.
  • The activities of the Israeli Central Bank most likely are a trend for other central bankers across the world.

But what is the real story, and what are some of the biggest actions central banks doing?

Central banks around the world are increasing the gold they hold in foreign exchange reserves, bringing the total to a 31-year high in 2021. According to the World Gold Council, the international research organization of the gold industry, central banks have built up their gold reserves by more than 4,500 tons over the past decade. As of September, the reserves totaled roughly 36,000 tons, the largest since 1990 and up 15% from a decade earlier.

This is an indication that the global fiat currency regimes that have been in place for decades are breaking down. Politicians have used the printing of money to bribe voters and subsequently devalue their currencies.

In short, you have been robbed. Perhaps you already know this. But just remember how and who robbed you. I see this understanding rarely played out in people’s voting habits.

See more Chart of the Day posts.

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 RWR original article syndication source.

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