Few Heavyweights Drive Dollar Reserve Decline, Report Finds

A recent report from the Federal Reserve Bank of New York challenges the notion that countries are rapidly diversifying away from the US dollar. According to Linda S. Goldberg and Sneha Parthasarathy, there is little evidence of a widespread official shift towards other currencies.

The authors warn that averages can be misleading, as they may reflect the actions of only a few large players rather than a broad trend. Between 2015 and 2019, China and Russia were responsible for most of the decline in dollar holdings, followed by Mexico and Morocco between 2019 and 2023.

Outside of these heavyweights, changes in reserve management mostly reflected local needs such as access to dollar liquidity, exchange rate management, and building insurance against funding shocks. The authors conclude that 'the reserve change channel reflects a rotating group of countries responding to idiosyncratic reserve management needs rather than systematic dollar avoidance.'