US Monetary Spillovers, Foreign Exchange, and Gold Reserves at Times of Geopolitical Fragmentation

Joshua Aizenman, Jamel Saadaoui, Gazi Salah Uddin and Naoki Yago

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper studies whether countries with larger foreign exchange and gold reserve buffers exhibit smaller exchange-rate responses to US monetary policy surprises. We test a central-bank reserve balance-sheet channel in which large reserve stocks can deter speculative pressure by signaling credible dollar-liquidity capacity, collateral value, and future intervention capacity, even without contemporaneous reserve sales. For identification, we use high-frequency FOMC monetary surprises, minute-level exchange rates, and predetermined reserve holdings for 18 countries. Countries with larger dollar reserves exhibit smaller exchange-rate depreciations after US monetary tightening, while non-dollar reserves do not display the same pattern. Gold reserves are also associated with smaller depreciations. These buffer effects are concentrated in countries without swap and repo lines and are strongest where dollar exposure, especially external dollar liabilities, is larger. The results show that reserve composition and access to dollar liquidity facilities, not only aggregate reserve size, are empirically relevant for exchange-rate resilience.

Keywords: monetary policy spillovers; exchange rates; foreign exchange reserves; gold reserves; dollar liquidity (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 F32 F41 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2026-61

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