New York Fed Study Finds Most Central Banks Are Not Systematically Reducing Dollar Holdings

The latest research from the New York Federal Reserve indicates that although the share of the dollar in global official foreign exchange reserves has decreased from 64% to 56%, this does not mean that central banks worldwide are systematically reducing their dollar assets. The study shows that since 2015, the number of countries increasing and decreasing their dollar assets has been roughly equal. The decline in the dollar's reserve share is primarily driven by concentrated portfolio adjustments by a few large reserve managers, rather than a widespread asset reallocation globally. Between 2015 and 2019, the relevant changes were mainly driven by two central banks; from 2019 to 2023, Mexico and Morocco also became significant influencing factors. The New York Fed states that the adjustments in foreign exchange reserves for most economies still primarily serve conventional purposes such as meeting dollar liquidity demands, managing exchange rates, and responding to funding chain shocks, rather than actively avoiding the dollar. Furthermore, IMF data shows that the dollar's reserve share fell to its lowest level since 1995 in January this year, mainly due to the passive depreciation of reserve assets caused by the weakening dollar exchange rate, rather than large-scale dollar sales by central banks.

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