Dollar Dominance: State Banks, Not Central Banks, Drive Global Reserves

The world is not moving away from the US dollar as conventional wisdom suggests. Instead, it's shifting its dollars from traditional reserves to state banks, pension funds, and other quasi-sovereign investors.

This shift was highlighted by Brad Setser, a senior fellow at the Council on Foreign Relations, who argues that it's de-reservification, not de-dollarization.

The International Monetary Fund (IMF) data on currency composition of foreign exchange reserves is often scrutinized for signs of a decline in dollar usage. However, recent data shows only a slight increase from 56.5% to 57%.

The real story lies elsewhere: China's state banks hold almost as many foreign assets as the central bank, Japan's Government Pension Investment Fund has nearly as many foreign assets as the government's foreign exchange reserves, and Korea's National Pension Service has more foreign assets than the Bank of Korea.