Central banks lead subtle shift away from dollar

A record U.S. budget gap and the rise of dynamic developing economies like China suggest the dollar, down over 20 percent since 2002 on a trade-weighted basis, has further to fall.

Of course, the dollar comprises some two-thirds of global reserves and will remain dominant in most holdings, as attempts to dump it would destroy the value of central bank portfolios.

But with the speed of reserve accumulation increasing after a crisis-induced lull late last year, policy makers can choose to park more new cash in euros and yen without having to sell existing dollar assets.

"I think 2009 will be remembered as a watershed moment for currencies," said Neil Mellor, strategist at BNY Mellon, which has some $20 trillion in assets under custody. "I don't think there will be an imminent move, but it is quite clear there's a plan to shift reserves to a more balanced portfolio."

Barclays Capital research showed that central banks that report reserve breakdown put 63 percent of new cash coming into their coffers between April and July into non-U.S. currencies.

"There's an incipient desire to reduce the dollar share of reserves, and central banks will use any opportunity to do it, provided it doesn't cause the dollar to fall out of bed," said Steven Englander, chief U.S. currency strategist at Barclays.