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Staff Reports

Drivers of Dollar Share in Foreign Exchange Reserves

Number 1087
March 2024 Revised August 2024

JEL classification: F3, F31, F33

Authors: Linda S. Goldberg and Oliver Zain Hannaoui

The share of U.S. dollar assets in the official foreign exchange reserve portfolios of central banks, at times, is taken as an indicator of dollar status. We show that the observed decline in aggregate U.S. dollar shares is not from a systematic decline in preferences for dollar assets. Instead, it is explained by a small group of countries, both due to monetary policies executed vis-à-vis euros and due to a small group of large foreign exchange reserve balance countries. Regression analysis shows that relative interest rates of reserve currencies and nontraditional currencies can tilt portfolio composition, particularly in relation to the scale of investment tranches within overall central bank portfolios. Geopolitical distance from the United States and financial sanctions are associated with lower U.S. dollar shares mainly if the primary foreign currency liquidity needs of the central bank are already satisfied.

Full Article

Author Disclosure Statement(s)

Linda Goldberg
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Oliver Zain Hannaoui
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Suggested Citation:
Goldberg, Linda S. and Oliver Hannaoui. 2024. “Drivers of Dollar Share in Foreign Exchange Reserves.” Federal Reserve Bank of New York Staff Reports, no. 1087, March. https://doi.org/10.59576/sr.1087

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