The stealth erosion of dollar dominance and the rise of nontraditional reserve currencies

Serkan Arslanalp, Barry Eichengreen and Chima Simpson-Bell

Journal of International Economics, 2022, vol. 138, issue C

Abstract: We document a decline in the dollar share of international reserves since 1999. This decline reflects active portfolio diversification by central bank reserve managers, rather than changes in exchange rates and interest rates, reserve accumulation by a handful of central banks with distinctive balance sheets, or changes in coverage of surveys of reserve composition. Strikingly, the shares of the euro, yen and pound sterling have not concurrently increased. Instead, the shift out of dollars has been in two directions: a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries that have played a more limited role in reserves. The evolution of the international reserve system in the last 20 years is thus a gradual movement away from the dollar, a modest rise in the role of the renminbi, and changes in market liquidity, relative returns and reserve management enhancing the attractions of nontraditional reserve currencies.

Keywords: International reserves; Currency composition; Dollar (search for similar items in EconPapers)
JEL-codes: F3 F31 F33 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:138:y:2022:i:c:s0022199622000885

DOI: 10.1016/j.jinteco.2022.103656

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