The closing year highlighted an ominous dollar movement. Central banks all over the globe dumped the dollar—often in favor of the euro and gold.

Data from the International Monetary Fund (imf) released on Wednesday showed that the dollar’s share in official foreign exchange holdings in 140 countries fell to its lowest level since the introduction of euro cash in 2002. From June 30 to September 30, the dollar fell from 62.8 percent to 61.6 of foreign reserves. The same three-month period saw the euro climb from 27.4 percent to 27.7 percent, the yen rise from 3.1 percent to 3.2 percent, and other currencies increase from 2.2 percent to 2.9 percent.

These small changes in percentage equate to billions of dollars.

Of Asia’s $5 trillion of foreign exchange reserves, a full three quarters are presently parked in dollars. But throughout the region, a desire to diversify out of the greenback is increasing. Recent data on accumulation of holdings shows the dollar’s role to be significantly shrinking. Barclays Capital estimates that, in the third quarter of 2009, the dollar’s share in reserve accumulation in the region dropped to less than 30 percent.

This is evidence that the nations holding dollar surpluses are rapidly changing their attitude toward the greenback.

India

On November 3, the imf announced that it had sold 200 metric tons of gold to the Central Bank of India. Matt Turner, metals analyst for VM Group, said that India’s purchase was “probably the most remarkable event in the gold market since the Central Bank Gold Agreement (cbga) was announced in late September 1999.” In swapping his country’s dollars for harder assets, India’s finance minister sent a clear message: The U.S. economy is unstable, and India is making provisions for the coming meltdown. For several years, India’s gold holdings had hovered around 350 tons, so the additional 200 was no small percentage increase. The transaction provides the most solid evidence to date that Asian countries are moving away from the dollar.

China

To the north, China is buying far fewer treasuries from the United States than in previous years. Its dollar investments are now short-term plays. Beijing recognizes that the dollar is no longer a sound long-term investment, and its shifting reserve holdings reflect that recognition. China has acquired 450 tons of gold in the past two years, according to Merrill Lynch, which brings its official gold holdings to more than 1,000 tons. The bulk of China’s gold purchases so far have come from domestic sources.

In recent months, Beijing has also been implementing swap agreements in which the yuan takes the dollar’s place as the currency of trade. China’s currency swaps have been between Hong Kong, Argentina, South Korea, Indonesia and Malaysia—so far. China and Russia have also agreed to expand use of their currencies in bilateral trade, and China and Brazil are discussing similar trade plans.

Russia

In September, Russian Prime Minister Vladimir Putin scolded the U.S. for “an uncontrolled issue of dollars” and pointed to the dollar’s dominance as “one of the triggers” of the global crisis. Putin called on the global community to move toward alternative reserve currencies, saying, “If there are several reserve currencies, this will not harm the U.S. economy in any way.”

As part of its diversification strategy, Russia bought 120 tons of gold from the imf this year and took on more euros. Russia’s central bank also said in December that it has plans to diversify into the Canadian dollar in the months ahead.

Latin America

As 2009 wrapped up, the Latin American and Caribbean member nations of the Bolivarian Alternative for the Americas (alba) announced a decision to drop the dollar as the currency of trade between them. In its place, these countries will use a newly created currency, the sucre. Venezuelan President Hugo Chávez originated the idea, intending it as a way to diminish Venezuela’s trade links with the U.S.

Middle East

Also contributing to the trend are Gulf Arab nations. Rather than continue to deal in dollars, these states are moving toward adopting a basket of currencies including the euro, yen and yuan, and gold. The Gulf Cooperation Council, which includes Saudi Arabia, Qatar, Kuwait and Abu Dhabi, also plans to launch a new currency to liberate itself from a declining dollar. If plans for this currency are realized, another sizable nail will have been driven into the coffin of the dollar as the world’s reserve currency.

The Independent reported in October that the finance ministers of Russia, China, Japan and Brazil had already held secret meetings to bring an end to pricing oil in dollars. The nations denied the report, which should come as no surprise, since confirmation would only reduce the value of the very reserves they hope to diversify out of.

What’s Ahead?

With the final days of 2009 having seen a slight upward shift for the dollar, 2010 could be very interesting. But any rally for the greenback would most likely be short-lived.

Nations jumped to the dollar as a safe haven in the turmoil of late 2008 and early 2009, but that sanctuary status is fading. Global economies no longer see the dollar as a wise long-term investment. Central banks want out, but do not want to jeopardize their own holdings. U.S. commentators glibly say that global economies are too intricately intertwined with America’s for them to ever pull free of the dollar. Supposedly, foreigners are caught in a dollar trap. But the fallacy of this reasoning will soon be exposed. As desperation increases, so does determination. The central banks will extricate themselves from America’s debt-riddled sinking ship, even at the expense of some temporary damage to their own markets.

Director of International Economics Benn Steil of the Council on Foreign Relations said the U.S. government’s “spending orgy will haunt us in 2010.”

“As we move into 2010, no doubt the horns will be blowing for the long-awaited U-shaped recovery. I suspect it won’t be long before we realize we’ve drunk too much, and that the second dip of a W-shaped recession awaits us,” he concluded.

On December 3, gold prices reached a record $1,226.10 an ounce. In the weeks since then, signs of a strengthening dollar have nudged the price down from this peak, but not significantly.

The greenback’s liquidity and status as the biggest market means it remains attractive to central banks, but increasingly only as a short-term buy. Global economies are accumulating dollars in steadily dropping percentages.

This move away from a declining dollar is a trend the Trumpet has been forecasting for many years. In 2000, we wrote, “As soon as America is no longer a safe place for foreign money, that money will be gone. And once the foreign money is gone, it will leave us with a mountain of debt that we cannot repay.”

America’s leaders appear blind to the looming revolt against the dollar. Global markets are in crisis, and unemployment rates remain at dangerous levels. The jobless will demand action, and politicians will seek scapegoats and distractions. The first step, blaming the U.S. and its currency for the global recession, has already been taken by of these dollar-dropping nations.

In most cases, though, the desire of governments to diversify out of the dollar represents their intent to decouple from a legitimate threat to their own economies. These countries recognize that the declining dollar is a symptom of titanic America’s reckless borrowing and printing. They are preparing themselves to abandon that luxurious—but doomed—ship of state. Soon. If the consequences of America’s disastrous economic practices are clear to the world’s central banks, why are they so difficult for U.S. leaders to see?

The trend of nations diversifying out of the American currency indicates dramatic changes happening on the world scene.

America’s luster as a destination for investment funds is rapidly fading.

For more on the significance of the declining role of the dollar, read “World Prepares to Dump the Dollar” and “Which Way Will the Dollar Go in 2010?”