The New York Fed has challenged the view that the dollar’s share of global foreign-exchange reserves is declining. Overall, the share fell by 2.8 percentage points, comprising declines through the preference channel and the foreign-exchange reserve accumulation channel, while movements in specific countries had localized effects.
The dollar’s share of global foreign-exchange reserves declined by 2.8 percentage points during Period A. The decline comprised 1.2 pp through the preference channel and 1.5 pp through the foreign-exchange reserve accumulation channel, with the two contributing almost equally. The analysis also points out that movements in specific countries had a significant impact on the breakdown.
The decline through the preference channel was attributed to lower dollar shares in countries including China, at 1.3 pp, Russia, at 0.5 pp, and Turkey, at 0.4 pp, while Sweden and Switzerland increased their dollar shares. These were localized developments driven by geopolitical factors involving Western countries and cannot simply be characterized as a global trend.
The foreign-exchange reserve accumulation channel accounted for a 1.5 pp decline, with Switzerland and several other countries playing a decisive role. The Swiss National Bank holds a lower proportion of its reserves in dollars than the global average, and its asset growth is analyzed as having pushed down the dollar share for the world as a whole. The Czech Republic and Russia are also cited as having reduced their dollar shares through this channel.
Switzerland is the world’s third-largest holder of foreign-exchange reserves, after China and Japan. Its movements affect the foreign-exchange reserve accumulation channel, but are also described as a mechanical result of its own investment policy rather than an intentional move away from the dollar.