04:31 PM EDT, 10/01/2024 (MT Newswires) -- Over at National Bank, Warren Lovely & Kyle Dahms noted the status of the U.S. dollar as the world's reserve currency remains a hot topic. So-called 'de-dollarization' (or 'declining dollar dominance' if really like alliteration) even features in the U.S. election debate, they said.

That the U.S. dollar's share of global foreign exchange reserves is in structural decline isn't really in doubt, according to the National Bank duo.

They noted IMF data on FX reserves allows them to quantify this long standing trend. As at the end of Q2 2024, the share of official reserves allocated to USD was down to 58.2% -- "a majority position sure but the lowest share since at least 1995". They also noted the U.S. dollar's weight has dropped 3.6%-pts since the initial COVID shock.

The National Bank duo said other 'super-majors' haven't really picked up the greenback's slack, the share of reserves currently allocated to EUR and JPY no higher ("in fact a bit lower") vs. early 2020. "It perhaps follows that a larger share of reserves has been steered to less-traditional reserve currencies, including (but not limited to) the Canadian dollar," they added.

Keying on CAD, no other so-called 'reserve' currency has seen its share of allocated reserves increase faster since early 2020, according to the National Bank pair. If you're keeping track, CAD's share of the official FX reserve pie has grown in 13 of the past 17 quarters, outpacing the AUD allocation and also clear of the Chinese renminbi's current allocation, they said.

At 2.68%, CAD's share of allocated FX reserves might not sound enormous, the National Bank duo said. But putting their own spin on an old saying, 'almost 3% of something is better than 100% of nothing'. They added: "This is where the multiplier effect (i.e., the sheer size of official reserves) comes into play. With allocated reserves of near US$11.5 trillion, even the narrow(ish) slice allocated to CAD converts to C$420 billion."

The National Bank team said: "For a country the size of Canada that's a veritable landside of loonies. True, 'official' money can be stashed in currency/deposits and/or slotted into the uber-short, ultra-safe T-bill market. But at least some of this official money looks to be finding its way into the Canadian dollar bond market, where net foreign purchases have set records so far this year.

"Maybe there's more to the non-resident bond buying bonanza than foreign hedge funds after all. Finally, all this foreign interest in Canadian dollar product-from the official sector or elsewhere-has lent the loonie support, contributing to what is arguably an overvalued CAD."