Conclusion: the euro will for the foreseeable future be by far the most important alternative to the dollar.
So writes Deutsche Bank economist Werner Becker in a new paper, Euro riding high as an international reserve currency (PDF). The euro's share of global foreign exchange reserves rose from 18% at the start of 1999 to around 25% by the end of 2003. Becker cites four factors why DB expect the euro share of global foreign exchange reserves to rise to 30-40% by 2010.
The vulnerability of the US dollar given the huge current account imbalances, the changes in exchange rate regime (e.g. changeover from a dollar peg to a basket of currencies with the euro as a core element as in the case of China), the central banks’ growing investment requirements and the increasing focus on returns.
But after 2010 the outlook is more murky. We could see a dollar renaissance. As for the yuan, don't hold your breath: while it has the potential to become an international currency, this will not be "until well after 2010."