Nov. 9 (Bloomberg) -- The dollar’s declining share of global currency reserves is almost entirely a result of weaker valuation rather than attempts by central banks to diversify holdings, according to Barclays Plc.

“Its share has declined because the U.S. dollar is not worth as much, not because central banks have been able to substitute other currencies,” wrote Steven Englander, chief U.S. currency strategist at Barclays Capital in New York, in a research note to clients today. “If the value of the U.S. dollar had not changed, its share in reserve portfolios would be virtually trendless.”

Central banks diversify only when the dollar is strong or rising and buy and hold the currency when it depreciates, according to Englander. The reluctance of central banks to sell the dollar when it’s falling makes a reduction in the greenback’s share of reserves “anomalous,” he wrote.

The dollar’s share of global reserves dropped to a decade low of 62.8 percent in the second quarter, from a peak of 72.7 percent in 2001, according to an International Monetary Fund report released Sept. 30.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major trading partners including the euro, yen and pound, dropped as much as 1.2 percent today to 74.930, the lowest level since August 2008. The gauge has lost 7.7 percent in 2009.

“As reserve portfolios grow, the potential losses from dollar weakness will mount,” Englander wrote. “While we expect U.S. dollar weakness in coming months, we see more risk of a relatively low volatility grind than of a precipitous collapse.”

The dollar’s share of global reserves in the second quarter was the lowest since 1999, when the euro debuted and the IMF started releasing quarterly figures.

To contact the reporter on this story: Ruby Madren-Britton in New York at rmadrenbritt@bloomberg.net

Last Updated: November 9, 2009 13:52 EST