Mohamed El-Erian Says It's 'Interesting' to Watch the Dollar's Reserve Currency Dominance as New York Fed Data Shows Few Countries Driving the Decline

Veteran economist Mohamed El-Erian said Sunday that the dollar’s declining share of global reserves is being driven by a handful of large reserve holders, not a broad shift away from the currency, adding that it will be worth watching how the trend evolves by year-end.

A Decline That Isn’t What It Seems

El-Erian was referencing a New York Fed paper titled “Are Central Banks Moving Out of Dollar Assets?”, which finds that the fall in the dollar’s share of official foreign reserves, from 64% in 2015 to 56% in 2025, “reflects the actions of a handful of large reserve holders” rather than “a systemic global shift away from dollar assets.”

In a post on X, he said it would “be interesting to see what happens to both the magnitude and the composition by the end of this year.”

These charts are from the New York Fed paper titled "Are Central Banks Moving Out of Dollar Assets?"
It finds that the fall in the share of the dollar in official foreign reserves around the world, from 64% in 2015 to 56% in 2025, "reflects the actions of a handful of large… pic.twitter.com/CSd2tZfArI

— Mohamed A. El-Erian (@elerianm) September 6, 2026

The Fed Research

The New York Fed’s research, published last week, showed that some countries are selling dollar assets and buying other currencies, which the researchers call the “preferences channel.”

However, much of the drop comes from a separate “reserve change channel,” where “a country with below-average dollar holdings expands its reserves,” which “mechanically pulls down the global aggregate, even without reducing its own allocation to dollars.”

The research found that just four countries, China, Russia, Mexico, and Morocco, accounted for nearly the entire 2.3 percentage point decline in the dollar’s reserve share between 2019 and 2023.

Why China and Russia are Leading the Shift

Roughly $300 billion of Russia’s $640 billion in foreign reserves was frozen following Western sanctions imposed after its 2022 invasion of Ukraine, pushing Moscow to rely more heavily on gold and yuan holdings.

China acquired an estimated 88 tonnes of gold in May and June alone. The shift echoes a 2023 warning from now-Treasury Secretary Scott Bessent, who said nations facing geopolitical friction would move reserves out of Western debt and into physical gold held within their own borders.

Even then, the dollar still accounts for the vast majority of global trade invoicing, cross-border lending and foreign exchange trading volume.

Dollar Index Performance

The U.S. Dollar Index has fallen 0.97% over the past month but is up 0.98% year-to-date and 0.97% over the past year, according to TradingView.

It is currently at 99.184, up 0.03%.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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