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Dollar reserve role secure but set to shrink: BIS

A picture illustration shows a 100 Dollar banknote laying on one Dollar banknotes, taken in Warsaw, January 13, 2011. REUTERS/Kacper Pempel

By Patrick Graham

BERLIN (Reuters) - The dollar's share of central bank reserves may fall by as much as 10-15 percentage points in coming years without threatening its role as the world's main reserve currency, a senior official from the Bank of International Settlements said on Saturday.

Peter Zoellner, head of the banking department at the central banks' central bank, also told one of the year's biggest gatherings of foreign exchange dealers that the role of China's renminbi would continue to grow.

He said there were signs that moves by Beijing to weaken the yuan and end a decade of constant appreciation were pushing some interests towards its tightly controlled onshore market and that this might develop further in coming months.

He expected trading and central bank reserves held in the yuan to continue to expand "at a sustained pace" but saw no prospect that the Chinese currency could replace the dollar as the reserve of choice over the next couple of decades.

"It could happen that the percentage will go slightly down with the reserve currency from between 65 and 70 maybe to between 50 and 60 percent," he told the ACI Financial Markets Association congress in Berlin.

"But the relative dominance of the United States dollar I do not believe that this will change for the next 10, 20 years."

Shifts in currency allocations by central banks, many of whom decline to publish breakdowns of how much they hold in reserves in a particular currency, are closely-watched by foreign exchange markets.

BIS is the biggest repository for data on volumes, movements and trade in currencies worldwide. Its triennial survey last year showed volumes of trading had risen to an average of $5.3 trillion a day.

Zoellner said the expansion of yuan offshore trading was one factor behind that rise and said he expected China's recent moves to prompt further change in how its currency regime, tightly controlled until now, operates.

"Most of the transactions over the last few years have been done in the offshore markets... but there is more and more activity in the domestic market in renminbi, quotas have been increased and so on," he said.

The moves by China, mainly carried out by shifting its onshore reference rate for the yuan against the dollar steadily weaker, has driven a surge in yuan trading offshore and an almost 3 percent fall in the value of the yuan against the dollar, putting an end to one of the currency world's few sure bets for steady appreciation.

"The Chinese authorities are doing something to break that expectation of low volatility and one way direction. This encouraged some of the speculative (investors) to do their short term trades in China," Zoellner said.

"We will see how this works out, it has to be observed for the next couple of months."

(Editing by Elaine Hardcastle)