NY Fed: Dollar Share Decline Driven by Select Reserve Managers

The New York Fed has analyzed global dollar reserves and found that the decline in the US dollar's share does not reflect a broad-based shift away from the currency. Instead, it is largely due to the actions of a limited number of reserve managers who have actively reduced their dollar holdings.

According to research by the Federal Reserve Bank of New York, between 2015 and 2023, the US dollar's share in global official foreign exchange reserves fell from 64% to approximately 56%. However, this decline was largely driven by China, Russia, Mexico, and Morocco, which have reduced their dollar allocations.

Senior researchers within the Federal Reserve System state that their findings show that during two different periods since 2015, the number of countries increasing and decreasing their dollar holdings was roughly equivalent. This suggests that the decline in the dollar's share should not be directly interpreted as a widespread withdrawal from the dollar by central banks around the world.

The study found that adjustments by other countries mainly reflected specific national needs, including obtaining US dollar liquidity, intervening in and managing exchange rates, and guarding against funding shocks. These drivers remain strong, and changes in reserve sizes reflect unique foreign exchange management actions taken by different countries at different times in response to their specific reserve management needs.