Canadian Dollar Faces Unprecedented Decline in Global Foreign Exchange Reserves
Global reserve managers are rapidly divesting from the Canadian dollar at a record pace, according to the latest data from the International Monetary Fund. The loonie's share of official foreign exchange reserves experienced the largest reduction among all major currencies during the final quarter of 2025, marking a significant shift in international confidence.
Steepest Decline Since Inclusion in IMF Reserve Currency List
Warren Lovely, an economist with National Bank of Canada, highlighted the severity of the situation. "In the final quarter of 2025, no identified currency saw its share of the global FX reserve pool trimmed more than CAD... not even USD," Lovely stated. The Canadian dollar's share of official reserves dropped by 0.34 percent over the entire year—the largest year-on-year reduction since the currency was added to the IMF's reserve currency list.
This translates to substantial financial outflows. Canadian dollar holdings fell by $34 billion in the fourth quarter alone and by $53 billion throughout 2025. Lovely described this as "unprecedented stuff," noting that the 11 percent year-on-year reduction in local currency terms was steeper than for any other reserve currency.
Context of Global Currency Shifts
The IMF's COFER (Currency Composition of Official Foreign Exchange Reserves) data tracks global holdings of major currencies. While the U.S. dollar and euro traditionally dominate, accounting for three-quarters of total FX reserves, the greenback's share has been declining in recent years, reaching new lows in 2025. Now, the Canadian dollar appears to be following a similar trajectory.
By the end of 2025, Canada's share of reserves had diminished to 2.49 percent, ranking it fifth among the currencies the IMF reports on. Meanwhile, the category of "other currencies" captured a larger share, growing to 6 percent of global reserves.
Potential Factors Behind the Divestment
Lovely suggested that Canada's uncertain economic outlook as a "small, open economy dependent on a protectionist America" might be working against the loonie. This trend isn't entirely new—reserve managers also reduced Canadian dollar positioning in early 2025 when former U.S. President Donald Trump launched a trade war with Canada clearly in his crosshairs.
However, a puzzling contradiction emerges when examining other data sources. Despite the IMF's recorded divestment, Statistics Canada reports show foreign investors remain keen on Canada, with non-residents adding Canadian dollar-denominated debt right into 2026.
Conflicting Data Presents Economic Puzzle
"While not the first time the IMF and StatCan data painted conflicting pictures, the Q4 gap between CAD reserves divestment and broader foreign buying of domestic debt was unprecedented. Peculiar," Lovely observed. The Statistics Canada data provides a more timely picture than the IMF's quarterly reports, suggesting alternative sources of demand for Canadian debt have emerged.
This discrepancy implies that non-resident positioning in Canada's domestic debt market has skewed toward "unofficial" asset managers more than ever before. Lovely noted that this shift, where the use of leverage creates scope for enhanced volatility, represents a significant change in how international investors approach Canadian assets.
The unprecedented pace of the Canadian dollar's removal from global reserves raises important questions about the currency's international standing and Canada's economic positioning amid shifting global trade dynamics and protectionist policies.
