Dollar Reserve Decline Driven by Small Number of Large Central Banks

The narrative of de-dollarization has been a hot topic in global macro circles for years. However, new research from the Federal Reserve Bank of New York suggests that this trend may not be as widespread as previously thought.

The study found that the decline in the dollar's share of foreign exchange reserves from 64% in 2015 to 56% in 2025 is largely driven by a small number of large reserve managers, including China, Russia, Mexico, and Morocco. These countries are responsible for the bulk of the drop, with most of it occurring after 2019.

The research breaks down reserve shifts into two channels: active preferences and mechanical adjustments. The active preferences channel shows that central banks were marginally increasing their dollar exposure from 2019 to 2023, contrary to the narrative of de-dollarization.

China's strategic reasons for reducing dollar dependence are likely a major factor in this trend. Russia's reserves were frozen after the invasion of Ukraine, creating an incentive for Moscow to diversify away from dollar assets. The study emphasizes the importance of monitoring these dynamics closely through the end of the year.