Reserved reserves

Weekly Updates

News that the Dutch central bank has headed for the exit of the New York Federal Reserve with as much gold as it could carry has revived questions about the US dollar’s reserve role. Traditionally, the dollar’s global position meant international central banks needed dollar reserves in highly liquid assets. They were a captive investor base. Are they now breaking out of captivity?
US government data suggests that foreign “official institutions” held a little over 10% of US Treasury securities at the start of the century. That rose to around 25% in 2012, but is now below 10%.
This does not mean central banks have dumped US bonds. Central banks may switch to private sector fund managers to invest their reserves. Such reserves are counted as private sector holdings in the data. Global trade relative to GDP has stagnated since 2010, implying stagnant central bank reserves. US debt has risen sharply relative to GDP. That naturally reduces the share of debt held by central banks.
Nonetheless, foreign central banks now exert less influence in the US Treasury bond market. As investors, central bankers are less volatile (in part because they are more restricted in what they can buy). The fickle, less captive private sector has increased its bond market influence.