New York Fed analyzes global dollar reserves: Dollar share declines, but "de-dollarization" narrative is exaggerated

According to Odaily News, a recent research report disclosed by the Federal Reserve Bank of New York (NY Fed), one of the 12 regional Federal Reserve Banks under the Federal Reserve System, suggests that the decline in the share of US dollar currency reserves in global foreign exchange reserves does not indicate a widespread shift of reserve assets from the US dollar to other currencies or gold. Instead, it is the result of proactive de-dollarization actions by a few reserve managers such as the Central Bank of Russia.

At the same time, the NY Fed is dialing down the narrative of "widespread de-dollarization," but does not overturn the positive value of gold allocation in reserves. The US dollar’s share in global official foreign exchange reserves has fallen from 64% in 2015 to about 56% in 2025, a decline of 8 percentage points. However, NY Fed researchers found that during two research phases since 2015, the number of countries increasing and decreasing their allocation to the dollar was roughly the same, with proactive reductions mainly concentrated among a few large reserve managers.

Among them, the contributions of China, Russia, Mexico, and Morocco from 2019 to 2023 include estimates based on data gaps. This suggests to some extent that the decline in the dollar’s share of global foreign exchange reserves cannot be directly interpreted as a broad-based retreat from the dollar by major global central banks.

Last year, dollar holdings accounted for 56% of official foreign exchange reserves, compared with 64% a decade ago. Although this change is often cited as evidence of widespread de-dollarization, senior researchers within the Federal Reserve System said their study found that in two different periods since 2015, the number of countries increasing and decreasing their dollar holdings was roughly equivalent.

As for the long-term allocation value of gold, US fiscal pressures provide an important foundation for the logic of gold serving as a hedge against credit risk. According to an interview by Bloomberg Intelligence with global asset management institutions, the expansion of the fiscal deficit and the reactivation of Treasury buybacks have revived trades that use gold and other assets to hedge fiscal credit risk.

NY Fed: The Extent of the Global Shift Away from the Dollar Is Exaggerated

"There is little evidence that the official sector is broadly diversifying to reduce dollar currency risk exposure," wrote Linda S. Goldberg and Snehha Parthasarathi in a Federal Reserve research article last week. "Aggregate statistics can lead to misconceptions about overall trends, when in fact these numbers reflect concentrated actions by a small subset of large reserve managers."

The NY Fed’s research shows that between 2015 and 2019, active reductions in dollar allocation mainly came from China and Russia; between 2019 and 2023, most of the decrease in dollar share was driven by China, Russia, Mexico, and Morocco.

Federal Reserve researchers stated that adjustments by other countries mainly reflect their own specific needs, including obtaining dollar liquidity, intervening and managing exchange rates, and guarding against funding shocks.

"These drivers remain strong," they added. "The channel of reserve size changes reflects that different countries undertake unique foreign exchange management actions at different times based on their specific reserve management needs, rather than systematically avoiding the dollar."

According to data published by the International Monetary Fund in January, the dollar's share in foreign central bank reserves fell to its lowest level since 1995, but this decline was due to dollar depreciation, not a reduction in holdings. However, another study released in June indicated that a majority of central banks globally plan to reduce their exposure to the dollar over the long term.

The core logic shared by recent Wall Street financial giants who are bullish on gold centers around the growing importance of reserve diversification and portfolio hedging value, with concerns over US fiscal credit being the primary supporting factor for these narratives. While the NY Fed has dialed down the "widespread de-dollarization" narrative, it hasn’t negated the allocation value of gold.

In February, the US Congressional Budget Office projected that the federal fiscal deficit would rise from roughly $1.9 trillion in fiscal year 2026 to about $3.1 trillion in 2036, with the share of federal debt held by the public as a percentage of GDP increasing from 101% to 120% over the same period. The persistent increase in bond supply, inflation uncertainty, and concerns over fiscal sustainability could all push up the term premium investors demand for holding long-term US Treasury bonds. Therefore, the rise in long-term yields could reflect both rate hike expectations and investors' demands for a higher compensation for fiscal risk, the latter being the core logic behind the rising allocation to gold among global institutions, including central banks, recently.

Furthermore, the US Treasury has expanded its support for the long-term bond market: according to an announcement on August 19, starting September 9, the single liquidity support repo cap for nominal, off-the-run coupon Treasuries with remaining maturities of 10–20 years and 20–30 years will be raised from $2 billion to at least $4 billion. This arrangement is intended to improve market liquidity but does not equate to Fed quantitative easing, nor will it eliminate the fiscal deficit.

Gold's "Rescue Force" Returns: Fiscal Credit Hedge and Energy Cooling Open Two Paths for Further Gains

Société Générale and Deutsche Bank are jointly noting that the structure of gold buying is improving. After reducing holdings in the first half of the year, Société Générale turned bullish again, believing that the impact of previous hawkish expectations has been largely digested, and that central bank gold purchases, geopolitical risks, and concerns about sovereign debt are supporting the long-term allocation value of gold. Deutsche Bank’s assessment on September 3 focused more on capital flows: commercial and retail selling has weakened, while discretionary hedge funds, asset managers, and banks are stepping in to buy, though their positions remain relatively light. What both firms point to is that, against a backdrop of increasingly unbalanced US fiscal credit, institutional restocking could create sustained demand rather than relying solely on sudden risk-aversion sentiment.

Major asset managers have already started to adjust their portfolios. Amundi bought gold during the recent pullback and expects gold prices to return to $5,000 by the end of 2026; Pictet, Robeco, and Fidelity International have also rebuilt positions they previously reduced. Official demand has also seen a seasonal uptick: World Gold Council data show that central bank net purchases in Q2 totaled 288.9 tons, up 62% year-on-year and hitting a record high for the second quarter; however, the weak Q1 means cumulative purchases in the first half remain at their lowest level since 2022, providing important logic in support of a gold buying comeback.

Citi offers another path for gold’s upside: cooling energy prices following a relaxation of Middle East tensions. Using the reopening of the Strait of Hormuz in Q4 2026 as the base scenario, Citi expects Brent crude prices to fall from $86/barrel in Q3 to $70/barrel in Q4, and to $65/barrel in 2027. Lower energy costs could ease fiscal and external balance pressures in emerging markets, unleashing demand for physical gold; if this also prompts a dovish shift in policy expectations and results in a decline in the dollar and real interest rates, the holding cost of gold would fall as well. However, Citi notes that a decline in oil prices alone does not guarantee a drop in real interest rates — how monetary policy and PCE inflation data respond will remain key. Using $4,500 as the base case, Citi’s $4,800 and $5,000 targets reflect respective upside potential of about 6.7% and 11.1%.

Bridgewater founder Ray Dalio recently issued another warning on US fiscal conditions. He argues that Treasury Secretary Janet Yellen’s expansion of long-term Treasury buybacks, combined with surging long-term Treasury yields and Japan reducing its exposure to the US bond market, may mean the US is approaching a critical fiscal tipping point; if the debt problem is not dealt with promptly, the US could face an even more severe debt crisis in the coming years, and Dalio recommends investors increase their gold holdings.

BofA's exclusive "Bull & Bear Indicator" has climbed to 9.5, entering the "sell" zone. Thus, Michael Hartnett, BofA’s head strategist known as "Wall Street’s most accurate strategist," leads a BofA team framework advising hedging dollar credit dilution with gold, going long commodities and natural resources needed for AI construction, while shorting AI bonds, and remaining wary of highly leveraged mega-scale cloud vendors, private credit, and cyclical financial assets.

The "niche market" paradox of gold is the most explosive aspect of this long-term bullish logic: although the total above-ground value of gold exceeds $30 trillion and daily trading volume also exceeds $300 billion, a massive portion is tied up in central bank reserves, jewelry, and long-term holdings, while the huge turnover in the London market mainly consists of repeated trades between banks, market makers, and algorithmic traders. The truly free float available to absorb new long-term inflows is far less than the nominal market cap. Goldman Sachs statistics show that as of last December, gold ETFs accounted for just 0.17% of the US private financial portfolio; strictly speaking, every 0.01 percentage point (one basis point) institutional or retail allocation increase to gold — according to the Goldman model — would drive gold prices up by approximately 1.4%.