Drivers of Dollar Share in Foreign Exchange Reserves

Linda Goldberg and Oliver Hannaoui

No 34888, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The share of US dollar assets in the official foreign exchange reserve portfolios of central banks, at times, is taken as an indicator of the dollar's global status. We provide a decomposition that shows two distinct channels contributing to the changes in the dollar share of reserves aggregated across countries: shifts in preferences for dollar assets, and changes in reserve balances driven by countries whose portfolio allocations differ from the aggregate. We document how the concentrated nature of foreign exchange reserve holdings allows countries that contribute a large share of aggregated reserves to exert substantial influence on aggregate dollar shares over time, potentially dominating the narrative. In recent periods, the key contributors to changes in aggregate preference shifts for dollar assets are changes in bilateral country trade with the United States and dollar debt share, with geopolitics additionally working through the investment tranches of central bank portfolios. Diversification away from dollar assets is more prevalent conditional on official reserves of countries being large enough to satisfy country liquidity needs.

JEL-codes: F33 (search for similar items in EconPapers)
Date: 2026-02
New Economics Papers: this item is included in nep-ifn and nep-mon
Note: IFM
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34888.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: Drivers of Dollar Share in Foreign Exchange Reserves (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:34888

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34888
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().