New York Fed Study Rejects Widespread De-dollarization Trend

Researchers at the Federal Reserve Bank of New York found that the decline in the U.S. dollar's share of global foreign-exchange reserves is driven by a small number of reserve managers rather than a widespread trend of de-dollarization. While dollar holdings dropped from 64% a decade ago to 56% last year, the study indicates that roughly equal numbers of countries increased and decreased their dollar holdings since 2015.

The active reallocation away from the dollar was primarily led by China and Russia between 2015 and 2019. From 2019 to 2023, China, Russia, Mexico, and Morocco drove much of the decline. The researchers concluded that these reserve changes typically reflect idiosyncratic management needs, such as liquidity access and exchange-rate management, rather than a systematic avoidance of the currency.

This finding contrasts with data from the International Monetary Fund showing that the proportion of dollars in foreign central bank coffers reached its lowest level since 1995. However, the New York Fed researchers argue that aggregate statistics can create misleading impressions of broad trends when they actually reflect the concentrated actions of a few large players.