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Drivers of Dollar Share in Foreign Exchange Reserves
The share of U.S. 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 ...