This month's featured article
The Russian sanctions and dollar foreign exchange reserves
Robert N MCCAULEYNonresident senior fellow, Global Development Policy Center at Boston University, Associate Member, Faculty of History at University Of Oxford
Menzie David CHINNProfessor, the University of Wisconsin
ITO HiroyukiNon-Resident Fellow, RIETI
Will the freezing of the Bank of Russia’s foreign exchange reserves undermine the dollar’s predominant role in official foreign exchange reserves? This column examines the aggregate evidence since end-2021 for any reduction in the dollar share of official foreign exchange reserves against a baseline constructed with data from 1999 through 2021. The observed dollar share in March 2024 differs little from the out-of-sample projection based on this baseline. On this showing, official reserve managers have not reduced the role of the dollar since the freeze of the Bank of Russia’s assets.
The effective freezing of nearly one-half of the Bank of Russia’s foreign reserves by a broad array of advanced economy governments in February 2022 led to a debate over whether this move would lead to a decline in the role of the dollar in official foreign exchange (FX) reserves. Previous freezes on the central banks of Libya, Iran, Venezuela and Afghanistan did not target hundreds of billions of dollars or such a large country. In this column, we review the aggregate evidence for diversification out of the dollar by official reserve managers since end-2021.
To read the full text:
https://www.rieti.go.jp/en/columns/v01_0215.html
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