(Sept 7): The decline in the dollar’s share of foreign-exchange reserves does not reflect a widespread reallocation away from the currency but rather moves by a small number of reserve managers, according to research from the Federal Reserve Bank of New York.
Dollar holdings comprised 56% of official currency reserves last year, compared with 64% a decade earlier. While the shift is often cited as evidence of broad de-dollarisation, the Fed researchers said their study showed roughly equal numbers of countries had increased and decreased their dollar holdings during two separate periods since 2015.
“There is little evidence of a widespread official diversification away from dollars,” Linda S Goldberg and Sneha Parthasarathy wrote in a blog last week. “Aggregate statistics can create misleading impressions of broad trends when they actually reflect the concentrated actions of a few large players.”
China and Russia accounted for most of the active reallocation away from the dollar between 2015 and 2019, the New York Fed’s study showed, while China, Russia, Mexico and Morocco were behind much of the decline in the 2019-2023 period.
The researchers said shifts elsewhere largely reflected country-specific needs including access to dollar liquidity, exchange-rate management and insurance against funding shocks.
“These drivers still retain their strength,” they added. “The reserve change channel reflects a rotating group of countries responding to idiosyncratic reserve management needs rather than systematic dollar avoidance.”
International Monetary Fund data showed in January the proportion of dollars in the coffers of foreign central banks was at the lowest since 1995 but the slide was down to a decline in the greenback rather than a reduction in holdings. However, a separate study released in June said most global central banks planned to reduce exposure to the US currency in the long term.
