## Executive Summary

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### Overview
- Despite major structural shifts in the international monetary system over the past six decades, the US dollar remains the dominant international reserve currency.
- Uses a newly compiled database of individual economies’ reserve holdings by currency alongside aggregate COFER data to investigate drivers of reserve currencies at the global and country level, changes over time, and differences across advanced economies (AEs) and emerging market and developing economies (EMDEs).

### Key empirical findings
- The US dollar had a share of 61 percent of global reserves at the end of 2019.
- The euro had a share of 21 percent of global reserves at the end of 2019.
- Eight currencies currently identified and reported in the IMF COFER database (the SDR currencies—US dollar, euro, Japanese yen, British pound, and Chinese renminbi, plus the Swiss franc, Canadian dollar, and Australian dollar—comprise 97 percent of total allocated reserves).
- The dollar is the most traded currency in the foreign exchange market at 44 percent of turnover and is used for 54 percent of global trade invoicing.
- The dollar accounts for 51 percent of cross-border bank claims (financial claim denomination).
- Financial links have become an increasingly important driver of reserve currency configurations since the global financial crisis (GFC) of 2008–09, particularly for EMDEs.
- Inertial effects have risen, implying US dollar dominance is likely to endure.

### Reserve currency composition and related metrics
- The dollar’s share in global foreign exchange turnover has been remarkably stable at close to 45 percent since 1989.
- COFER coverage: as of the end of 2019, there are 149 reporters accounting for roughly 94 percent of global reserves; the remaining 6 percent are unallocated reserves.
- Private-sector uses (trade invoicing and financial transactions), official-sector uses (exchange rate anchor and reserves), and denomination of financial claims are complementary and tend to reinforce each other.

### Conceptual framework and data/methodology
- Four key elements determining reserve currency status: economic size/dominance of issuers; credibility of issuers; transactional demand of reserve holders; inertia (path dependence).
- Aggregate reserve currency shares cover 1947–2018 (Eichengreen, Mehl, and Chiţu (2016) before 1995 and COFER since 1995).
- Disaggregated country-level reserve currency shares compiled for 57 economies—19 AEs and 38 EMDEs—over 1999–2018; sample limited by data availability to 10 AEs and 32 EMDEs, accounting for 28 percent of global reserves in 2018.
- Core empirical specification (aggregate): lagged reserve currency share (inertia), reserve issuer’s share in global GDP (network effect proxy), average appreciation of the reserve issuer’s currency against the SDR in the previous five years (credibility).
- Disaggregated country-level factors: trade links, foreign exchange alignment, financial links (external public debt or cross-border bank claims denominated in reserve currency).
- Estimation approaches: fixed effects for aggregate; country-level models estimated separately for AEs and EMDEs; robustness checks and alternative specifications undertaken.

### Drivers and changing importance over time
- Inertia (path dependence) is a strong predictor of subsequent reserve shares; lagged reserve-share coefficients about 0.9 in aggregate specifications.
- In disaggregated models lagged coefficients range roughly 0.6–0.8 (EMDEs lower, AEs higher), with inertia strengthening since the GFC.
- Financial links (currency denomination of external public debt and cross-border bank claims) are important and have become more significant since the GFC; particularly critical for EMDEs.
- Trade links generally do not robustly explain reserve currency shares in most specifications; trade links became more important for AEs since the GFC, driven by European countries in the sample.
- Credibility: a 10 percent appreciation of a currency is associated with a 0.4 percentage point increase in its share of global reserves (aggregate estimate).

### Stylized facts and historical context
- 20th century featured long periods with one dominant international currency (British pound, then US dollar).
- Not all reserve currencies fulfill all international roles: Japanese yen, British pound, and Swiss franc mainly for investment; renminbi little used for investment but increasing in trade invoicing; ECU predominantly an anchor currency.
- The US dollar and, to some extent, the euro, have been widely used for both trade and finance.
- Post-euro introduction: US dollar share slipped, recovered after the GFC and eurozone debt crisis; euro-denominated reserves higher in AEs than EMDEs but trended down; British pound share relatively small at about 4–6 percent in the last decade.
- Historical transitions vary widely in duration; abrupt changes have occurred in the past.

### Scenarios and quantitative experiments on financial links
- Cross-border banking scenario (AEs): if the share of cross-border bank claims in euros were to increase by 30 percentage points over the next 20 years (at the expense of US dollar claims), the share of euro-denominated reserves of an average country in the sample would go up by about 5 percentage points (country-level regression estimate).
- Historical reference: euro’s share in cross-border bank claims increased by 15 percentage points within a 10-year period after its launch in 1999.
- EMDE public debt scenario: if the share of euro-denominated public debt increased by 30 percentage points over the next 20 years at the expense of US dollar-denominated debt, the average share of the euro in EMDEs’ reserve portfolios could increase almost two-fold, from 23 percent to 40 percent.
- Interpretation: reserve issuers could materially expand prominence as reserve assets by expanding use in cross-border banking and debt markets; magnitude depends on historical trends and pace of financial-link changes.

### COVID-19, geopolitics, and potential triggers for change
- COVID-19 pandemic could alter the global economic landscape and has already produced a flight to safe assets and to the dollar, supported by US Federal Reserve liquidity actions.
- Pandemic-related capital flows: capital outflows from EMDEs were more than $100 billion in just two months during the pandemic; net issuance of bonds abroad reached $77 billion in April and May; nonresident portfolio flows to EMDEs were back in positive territory in Q2 2020.
- Geopolitical tensions can prompt strategic shifts in reserve holdings (example: Bank of Russia reallocation away from the US dollar into renminbi after Spring 2018 sanctions).
- Other potential triggers: rising geopolitical tensions, technological advances (digital currencies, payment systems), institutional reforms (for example, addressing euro-area institutional gaps), and long-run shifts in relative economic size.

### Technology as a potential disruptor
- Two potent short-term channels: emergence of digital currencies (public and private) and changes in payment and settlement networks.
- CBDCs:
  - BIS survey: about 80 percent of central banks are engaging in work related to CBDCs, and 40 percent have progressed to experiments or proof of concept (Boar, Holden, and Wadsworth 2020).
  - China testing a CBDC: in 2020 China became the first large country to put a CBDC into limited use; testing of a digital renminbi is under way in 28 provinces.
  - Eastern Caribbean Central Bank accelerated plan to issue a CBDC by 2021.
- Private digital currencies and global stablecoins:
  - GSC launch could increase demand for fiat reserve currencies backing it or GSCs themselves could attain reserve status.
  - Facebook announced plans to launch Libra in 2019, illustrating potential private-sector pushes.
  - Financial Stability Board has developed high-level principles for regulation of GSCs.
- Payment systems and digital platforms:
  - Alternative systems (including distributed ledger technologies) could reduce need for vehicle/invoicing currencies, enable settlement in multiple currencies, or center around an established currency.
  - Large digital platforms and bundled services could facilitate rapid uptake of digital assets.
- Technology could either strengthen a dominant currency or facilitate a shift toward a multipolar reserve currency world; risks include cyberattacks, network vulnerabilities, and data shortages as an asset for new forms of money.

### Renminbi internationalization and evidence
- Between 2010 and 2014, 37 central banks reportedly added the renminbi to their reserve portfolios.
- Share of renminbi in global reserves reached 2 percent in 2019.
- Evidence of renminbi invoicing adoption: renminbi invoicing in Japanese exports to China increased from 1.3 percent in 2009 to 12.3 percent in 2017 (Ito and others (2019)).

### Econometric robustness and heterogeneity (selected numerical results)
- Aggregate lagged reserve-share coefficients about 0.9 (examples: 0.888*** fixed effects 1947–2018; 0.946*** random effects; 0.908*** Arellano-Bond).
- Disaggregated lagged coefficients: Fixed Effects EMDE 0.68*** (0.02); Fixed Effects AE 0.79*** (0.06) (Annex Table 4).
- Debt Share and Bank Claims Share generally positive and significant in many specifications (examples from Annex Table 4: Debt Share Fixed Effects EMDE 0.10*** (0.04); Bank Claims Share Fixed Effects EMDE 0.08*** (0.03)).
- Magnitude in disaggregated models: a 10 percent increase in the share of a given currency in public debt or bank claims is associated with about 1 percentage points increase in that currency’s reserve share.
- Regional/time heterogeneity: inertia strengthened post-GFC (EMDE 1999–2007 Lagged Reserve Share 0.47*** (0.06) vs EMDE 2008–2018 0.68*** (0.03)) (Annex Table 5).

### Implications, uncertainties, and outlook
- The combined rise in financial-link importance and inertial effects suggests continued dollar dominance, but transitions remain possible under certain triggers (pandemic effects, geopolitics, technology, institutional change).
- The currency composition of reserves is shaped by slow-moving factors, but large sudden changes have occurred historically.
- Ongoing monitoring of technological, geopolitical, and macroeconomic developments is warranted given their potential to alter reserve currency configurations.

*This IMF Departmental Paper: Executive Summary*

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### Executive Summary

### Overview
- Despite major structural shifts in the international monetary system over the past six decades, the US dollar remains the dominant international reserve currency.
- The paper uses a newly compiled database of individual economies’ reserve holdings by currency alongside aggregate COFER data.
- The analysis investigates drivers of reserve currencies at the global and country level, changes over time, and differences across advanced economies (AEs) and emerging market and developing economies (EMDEs).

### Key empirical findings
- The US dollar had a share of 61 percent of global reserves at the end of 2019.
- The euro had a share of 21 percent of global reserves at the end of 2019.
- Eight currencies currently identified and reported in the IMF COFER database (the SDR currencies—US dollar, euro, Japanese yen, British pound, and Chinese renminbi, plus the Swiss franc, Canadian dollar, and Australian dollar—comprise 97 percent of total allocated reserves).
- Financial links have been an increasingly important driver of reserve currency configurations since the global financial crisis (GFC) of 2008–09, particularly for EMDEs.
- The paper finds a rise in inertial effects, implying that the US dollar dominance is likely to endure.
- The dollar stands out as the currency most traded in the foreign exchange market at 44 percent of turnover and most used for trade invoicing at 54 percent of global trade.
- The dollar accounts for 51 percent of cross-border bank claims (financial claim denomination).

### Reserve currency composition and related metrics
- The dollar’s share in global foreign exchange turnover has been remarkedly stable at close to 45 percent since 1989.
- Unallocated reserves are the difference between the total foreign exchange reserves in the IMF’s International Financial Statistics database and the total allocated reserves in COFER.
- The paper documents that private-sector uses (trade invoicing and financial transactions), official-sector uses (exchange rate anchor and reserves), and denomination of financial claims are complementary and tend to reinforce each other.

### Drivers and changing importance over time
- Inertia (path dependence) and financial links are identified as important drivers of reserve currency shares.
- The importance of financial links and inertial effects has increased since the GFC of 2008–09.
- The sustained growth and rapid integration of EMDEs has increased their economic heft and created a less-concentrated structure of global output and trade, contributing to a more multipolar global economy (IMF 2016).

### Potential triggers for change in the status quo
- New developments could accelerate transition to a new landscape of reserve currencies, including:
  - The COVID-19 pandemic, which "could yet alter the global economic landscape."
  - Rising geopolitical tensions that "could trigger strategic shifts in reserve holdings."
  - Technological advances, in particular the emergence of digital currencies and advances in payment systems, which "could speed up the transition to alternative, and perhaps less stable, configurations of reserve currencies."
- Historical precedents show transitions can take from several years to many decades, but abrupt changes have occurred (for example, the Dutch florin’s rapid loss of status in the 18th century and the long transition from sterling to the US dollar in the 20th century).
- Evidence of renminbi adoption in invoicing includes Ito and others (2019): the share of renminbi invoicing in Japanese exports to China increased from 1.3 percent in 2009 to 12.3 percent in 2017.

### Historical context and implications
- The US dollar’s dominant position has persisted through many structural changes: creation of the SDR in the 1960s; collapse of Bretton Woods in the 1970s; Japan’s emergence in the 1980s; the introduction of the euro in 1999; and trends toward greater reserve diversification following the GFC.
- The IMS has often been dominated by a few currencies used widely for significant periods of time; periods without a dominant currency have also occurred historically.
- The Triffin dilemma is noted as a structural tension arising from the outsized role of a reserve currency issuer.

### Conclusions and outlook
- The combined rise in financial-link importance and inertial effects suggests continued dollar dominance, but transitions remain possible under certain triggers.
- Ongoing monitoring of technological, geopolitical, and macroeconomic developments is warranted given potential to alter reserve currency configurations.

*This IMF Departmental Paper: Executive Summary*

### Box 1. International and Reserve Currencies in Retrospect

### Box 1. International and Reserve Currencies in Retrospect

### Conceptual framework
- Four key elements determine reserve currency status:
  - The economic size/dominance of reserve issuers: larger economy and role in international trade and financial networks increase likelihood of its currency being used internationally and as a reserve asset.
  - The credibility of reserve issuers: policy credibility and financial markets’ depth and liquidity support a stable store of value and wide tradability.
  - The transactional demand of reserve holders: intended uses of reserves for trade-, finance-related payments, or foreign exchange market intervention influence portfolio decisions.
  - Inertia: reserve currency status changes very slowly; past use creates strong inertial bias and path dependence, reinforced by network effects.

### Data and methodology
- Aggregate data:
  - Aggregate reserve currency shares cover the period 1947–2018.
  - Sources: Eichengreen, Mehl, and Chiţu (2016) before 1995 and COFER since 1995.
  - COFER database: as of the end of 2019, there are 149 reporters accounting for roughly 94 percent of global reserves.
  - The remaining 6 percent of global reserves are the unallocated reserves for which the currency breakdown is not available.
  - Reported shares coverage: US dollar and British pound cover 1947–2018; French franc, Deutsche mark since 1970; Dutch guilder since 1973; Swiss franc and Japanese yen since 1973; Australian dollar and Canadian dollar since 2012; Chinese renminbi since 2016.
- Disaggregate (country-level) data:
  - Individual country reserve currency shares compiled for 57 economies—19 AEs and 38 EMDEs—over 1999–2018.
  - Sample limited by data availability to 10 AEs and 32 EMDEs, accounting for 28 percent of global reserves in 2018.
  - Panel is unbalanced: only 8 countries report data for the full period and 3 for less than 10 years.
- Core empirical specification (aggregate):
  - lagged reserve currency share to capture inertia
  - reserve issuer’s share in global GDP to proxy network effects
  - average appreciation of the reserve issuer’s currency against the SDR in the previous five years to capture credibility
- Additional country-level factors (disaggregate):
  - trade links: share of country’s trade with the reserve issuer
  - foreign exchange alignment: exchange rate comovement with the reserve currency
  - financial links: share of country’s external public debt or cross-border bank claims denominated in reserve currency
- Estimation approach:
  - Aggregate results: fixed effects model (for currencies and countries).
  - Disaggregated models: estimated separately for AEs and EMDEs; financial links measured by external public debt for EMDEs and cross-border bank claims for AEs.
  - Robustness checks and alternative specifications undertaken (see Annexes referenced in source).

### Key empirical findings
- General findings:
  - Drivers of reserve currency shares vary across AEs and EMDEs.
  - Inertial effects are important throughout the period and have become increasingly important in recent decades.
  - Financial links are becoming more important; trade links do not appear to be a robust driver of reserve currency shares in most specifications.
- Inertia:
  - Lagged reserve currency share is a strong predictor of the next year’s share, particularly for long-standing reserve currencies.
  - Inertial effects are weaker in disaggregated data (indicating portfolio shifts by some countries) but have strengthened since the GFC, particularly in EMDEs.
  - Inertia tends to dominate economic and geopolitical effects and currency credibility once a currency is “dominant.”
- Trade links:
  - Trade links/networks do not robustly explain aggregate reserve shares.
  - Reserve issuers’ centrality in global trade networks has limited explanatory power.
  - Using disaggregated data, trade links generally fail to explain observed reserve shares; trade links have become more important for AEs since the GFC, driven by European countries in the sample.
- Financial links:
  - The currency denomination of external public debt and cross-border bank claims is an important and increasingly significant driver of reserve shares, especially since the GFC.
  - Currency denomination of public debt is an especially important determinant for EMDEs, particularly in Africa and Asia.
  - Other measures of financial depth/reach (share in foreign exchange turnover or cross-border bank claims for some specifications) do not show robust effects, suggesting possible threshold effects.

### Stylized facts and trends
- Historical usage:
  - The 20th century was characterized by long periods with one dominant international currency (first the British pound, then the US dollar after the inter-war transition).
  - Not all reserve currencies fulfill all international roles: Japanese yen, British pound, and Swiss franc mainly for investment; renminbi little used for investment but increasing in trade invoicing; ECU predominantly an anchor currency.
  - The US dollar and, to some extent, the euro, have been widely used for both trade and finance.
- Disaggregated patterns (1999–2018 sample averages):
  - US dollar share slipped after the introduction of the euro, recovered after the GFC and the eurozone debt crisis.
  - Euro-denominated reserves higher in AEs than EMDEs but trended down over the sample period.
  - British pound share relatively small at about 4–6 percent in the last decade.
  - Japanese yen had a slight surge after the GFC in AEs and remains negligible in EMDEs.
- Global shifts and COVID-19:
  - Financial integration has increased: global capital flows (sum of gross capital inflows relative to global GDP) are three times as large in recent years compared with the 1970s.
  - The COVID-19 crisis produced a flight to safe assets and to the dollar, supported by US Federal Reserve liquidity actions.
  - Capital outflows from EMDEs were more than $100 billion in just two months during the pandemic; net issuance of bonds abroad reached $77 billion in April and May; nonresident portfolio flows to EMDEs were back in positive territory in Q2 2020.
  - Despite EMDE growth and shifting global GDP, high inertia implies the US dollar will likely remain dominant for the foreseeable future.

### Scenarios and quantitative thought experiments on financial links
- Cross-border banking scenario:
  - If the share of cross-border bank claims in euros were to increase by 30 percentage points over the next 20 years, the share of euro-denominated reserves of an average country in the sample would go up by about 5 percentage points (based on country-level regression estimates).
  - Historical reference: euro saw its share in cross-border bank claims increase by 15 percentage points within a 10-year period after its launch in 1999.
- EMDE public debt scenario:
  - If the share of euro-denominated public debt were to increase by 30 percentage points over the next 20 years at the expense of debt denominated in US dollars, the average share of the euro in EMDEs’ reserve portfolios could increase almost two-fold, from 23 percent to 40 percent.
- Interpretation:
  - Reserve issuers could materially expand their prominence as reserve assets by expanding use in cross-border banking and debt markets.
  - The magnitude of potential shifts depends on historical trends and the pace of changes in financial linkages.

### Implications and uncertainties
- The currency composition of reserves is shaped by slow-moving factors (historical ties, trade, finance), but large sudden historical changes have occurred.
- Key uncertainties—exacerbated by the COVID-19 crisis—could have lasting impacts on trade and financial relationships and thus on reserve compositions and the international monetary system (IMS).
- Financial considerations (denomination of debt and banking claims) present plausible pathways for shifts in reserve currency shares, though significant inertia and threshold effects constrain rapid change.

*Source: IMF staff calculations and analysis as presented in Box 1 of the provided content.*

### 1. Advanced Economies2. Emerging Market and Developing Economies

### rceimsea - 1. Advanced Economies2. Emerging Market and Developing Economies

### Scenario assumptions and numerical experiments
- Advanced economies scenario: share of cross-border bank claims in euros is assumed to increase by 30 percentage points over the next 20 years at the expense of the share of claims in US dollars.
- Emerging market and developing economies (EMDEs) scenario: considers how euro and US dollar reserve shares would evolve if the share of debt denominated in euros increased by 30 percentage points in the next 20 years, whereas the share of debt denominated in US dollars declined by 30 percentage points.
- Scenarios incorporate: high degree of inertia in reserve shares; role of trade links; trade shares assumed constant at their 2018 level.
- Source of scenario calibration: econometric analysis in Chapter 3 using individual country data.

### Trade links and reserve demand
- Empirical finding: trade links have become less relevant as a driver of reserve currency configurations (Chapter 3).
- Pandemic-related considerations:
  - Fragility of global supply chains and interest in securing critical supplies could lead to more diversified supply chains and/or localized production, with implications for reserve demand.
  - Post-crisis, lower trade shares with reserve issuers could lead to lower reserve shares.
  - Countervailing force: any reserve issuer’s ability to elevate its currency as an invoicing currency could offset trade-driven declines.
- Trade shares are held constant at 2018 levels in the scenarios.

### Credibility of issuers and implications
- Credibility matters: dominance of the US dollar has been related, in part, to a lack of credible alternatives.
- Euro constraints: stalling use of the euro linked to institutional gaps in the European monetary union (including a lack of risk sharing) exposed during the eurozone debt crisis.
- Institutional improvements (for example, addressing impediments in the euro area) could shift reserve currency composition away from the US dollar.
- Short-term credibility reinforcement: swift actions by the US Federal Reserve during the COVID-19 crisis may have reinforced the credibility of the US dollar.
- Long-run constraint: if the US economy continues to decline in size relative to the global economy, demand for reserves might outstrip supply of US dollars, prompting official sector search for alternatives.
- Reserve scarcity: rising demand for reserve assets, particularly in the context of a global shortage of safe assets, may incentivize other suppliers to develop new reserve currencies.

### Exchange rate anchors and monetary frameworks
- Observed trend: number of countries with exchange rate pegs has declined in recent years, lowering need to hold the reserve currency for FX intervention purposes.
- Possible explanation for empirical results: loosening of fixed exchange rate ties and increasing use of alternative monetary frameworks may partly explain why the empirical analysis does not find a positive relationship between anchoring and reserve currency shares.
- Caveat: effect of exchange rate regimes and anchoring may be poorly identified given small sample size.

### Geopolitics and strategic drivers of reserve shifts
- Geopolitical considerations can trigger changes in reserve holdings beyond economic determinants (foreign policy, security ties, military alliances).
- Empirical identification of geopolitical effects is difficult, but historical evidence cannot rule them out.
- Example: Spring 2018 — Bank of Russia implemented a significant reallocation of its reserve portfolio away from the US dollar, mostly into renminbi, following imposition of US sanctions.
- Ongoing risks: trade tensions, COVID-19–related actions (oil price movements, export bans on medical supplies and equipment), and reduced cooperation could prompt strategic changes in reserve holdings.
- Deliberate national policies to internationalize currencies (economic and political incentives, prestige, ability to project power) can influence reserve composition; renminbi was added to the SDR basket in 2016.

### Renminbi internationalization and recent metrics
- Between 2010 and 2014, 37 central banks reportedly added the renminbi to their reserve portfolios.
- Share of renminbi in global reserves reached 2 percent in 2019.
- In 2019, Facebook announced plans to launch Libra (a single-currency private stablecoin), illustrating potential private-sector pushes that could affect reserve demand.
- China testing a CBDC: in 2020 China became the first large country to put a CBDC into limited use; testing of a digital renminbi by banks, government, businesses, and individuals is under way in 28 provinces.

### Technology as a disruptor: channels and potential effects
- Two short-term potent channels:
  1. Emergence of digital currencies (public and private).
  2. Changes in existing networks, including payment ecosystems.
- Central bank digital currencies (CBDCs):
  - BIS survey: about 80 percent of central banks are engaging in work related to CBDCs, and 40 percent have progressed to experiments or proof of concept (Boar, Holden, and Wadsworth 2020).
  - CBDC reserves implications depend on issuer: a CBDC issued by current issuers could increase demand for reserves in those currencies; a CBDC issued by smaller countries with highly credible policy frameworks could make their currencies easier to use as reserves.
  - Example: Eastern Caribbean Central Bank has accelerated its plan to issue a CBDC by 2021.
- Private digital currencies (PDCs) and global stablecoins (GSCs):
  - GSC launch could increase demand for fiat reserve currencies backing it, but GSCs could also themselves attain reserve status or multiple GSCs could coexist as reserve assets.
  - Financial Stability Board has developed high-level principles for regulation of GSCs in response to a G20 call.
- Payment systems:
  - Most existing cross-border transfer and payment systems face challenges.
  - Alternative systems (including distributed ledger technologies) could overcome constraints and inefficiencies, enable settlement in multiple currencies, reduce need for vehicle/invoicing currencies, and move the IMS toward decentralization.
  - New or improved systems may center around one established international currency and boost its position regionally or globally.
- Digital platforms and Big Tech:
  - Digital platforms could provide alternative networks for emerging fiat or digital currencies to tap into.
  - Large pre-existing networks and bundled services could facilitate rapid uptake of digital assets.

### Longer-term considerations and scenario-planning insights
- Technology can strengthen a dominant currency or facilitate a shift toward a multipolar reserve currency world.
- Key factors shaping future reserve configurations: credibility, scale, stability of traditional and nontraditional reserve assets, climate change risks, and broader geopolitical and institutional developments.
- Credibility and trust generally benefit currencies of countries offering geopolitical neutrality and/or strong institutions.
- Possible future developments:
  - Currencies issued by socially responsible and accountable private sector entities might replace public-sector currencies.
  - Greater decentralization of economic power and reserve currencies.
- Risks highlighted by scenarios: cyberattacks, network and technology vulnerabilities, and shortages of personal data as an asset underlying new forms of money.
- Continued need for risk insurance and regulation in an interconnected world.

### Historical shifts and observed currency-share movements
- Post-GFC and eurozone debt crisis: observable decline in the share of the euro in reserve currency portfolios.
- Pre-GFC (1999–2007): roughly similar number of shifts away from the US dollar toward the euro (3) as from the euro toward the US dollar (2).
- Since 2008 (2008–18): number of significant and sustained shifts increased, with significantly larger number of shifts away from the euro; 5 out of 8 significant and sustained shifts away from the dollar have been toward currencies other than the euro (including Australian dollar, Japanese yen, and Chinese renminbi).
- Note on definition of shifts: decline in three-year average over previous (non-overlapping) three-year average share that is both greater than a 5 percentage point decline and greater than 2 standard deviations for a three-year moving average time series of the currency share.
- Euro shares have held up in countries with strong economic and political ties to the eurozone (for example, EU countries outside the eurozone in ERM II that maintain a peg against the euro or are obliged to adopt the euro).

*Italic: Source: IMF staff calculations and text from the PDF chapter "rceimsea - 1. Advanced Economies2. Emerging Market and Developing Economies."*

### Box 2. Evidence on Eurozone Credibility

### Box 2. Evidence on Eurozone Credibility

### Key empirical findings on Russia’s reserve composition shifts
- Publicly available data show a gradual decline in the US dollar’s share of reserves over 2006–14, from 49 to 44 percent.
- Significant fluctuations in the US dollar share begin in 2017, possibly mirroring developments in US-Russian relations.
- There was a particularly sharp decline in the US dollar share in Russian foreign exchange reserves in 2018 following the issuance of US sanctions against Russia.
- A simple event study analysis, using quarterly data from 2006 through 2018, supports the hypothesis that sanctions may have been correlated with shifts in reserve shares.
- The comparison of dollar shares before and after the 2018 episode, after applying year fixed effects to partially control for economic and other factors, suggests that tensions in 2018 were associated with a statistically significant 26 percentage points decline in the dollar share.
- Data scarcity and identification issues (including from the presence of multiple episodes at short intervals, some leading to increased, some to an easing of, tensions) imply that the results should be interpreted as a correlation rather than a causal relationship.

### Contextual and methodological notes
- The April 2018 US sanctions targeted Russian individuals and business entities in response to events in Syria and Ukraine.
- The event study used quarterly data spanning 2006–2018 and applied year fixed effects to partially control for economic and other confounding factors.
- Limitations highlighted in the analysis include data scarcity and identification issues arising from multiple, closely spaced episodes with varying impacts on tensions.

*Source: Bank of Russia data and event study analysis summarized in the source document.*

### Annex 1. Existing Literature on Drivers of Reserve Currency Shares

### Annex 1. Existing Literature on Drivers of Reserve Currency Shares

### Empirical specification
- Data: reserve shares from Eichengreen, Mehl, and Chiţu (2016) before 1995 and COFER since 1995, covering the period 1947–2018.
- Core regression (aggregate): Reserve Sharei,t = αi + δt + Reserve Sharei,t-1 + GDP Sharei,t-1 + Credibilityi,t-1 + εi,t
  - αi is a currency random/fixed effect
  - δt is a time fixed effect
  - GDP Share is the share of the reserve issuer’s economy in global GDP
  - Credibility is the average appreciation of the reserve issuer’s currency against the SDR in the previous five years
- Estimation choices:
  - Baseline uses currency fixed effects (Hausman test rejects random effects).
  - Sample split into 1947–98 and 1999–2018 to assess changes after the euro’s introduction.
  - Synthetic euro constructed from Deutsche mark, French franc, and Dutch guilder pre-1999; euro used from 1999.

### Main results (aggregate data)
- Inertia:
  - Lagged reserve-share coefficients are large and persistent; coefficients on lagged reserve shares are about 0.9.
  - Annex Table 1 reports Lagged Reserve Share coefficients such as 0.888*** (fixed effects, 1947–2018), 0.946*** (random effects), 0.908*** (Arellano-Bond).
  - Panel split: 0.864*** (fixed effects, 1947–1998) and 0.758*** (fixed effects, 1999–2018) in Annex Table 1.
- Credibility:
  - Coefficients significant over the full sample.
  - Economic magnitude: a 10 percent appreciation of a currency is associated with a 0.4 percentage point increase in its share of global reserves.
  - Annex Table 1 examples: Credibility = 0.046** (0.016) in fixed effects 1947–2018; 0.055*** (0.014) in 1947–1998; 0.014 (0.036) in 1999–2018.
- Size (GDP share):
  - The relative size of the issuer’s economy is not robustly significant across specifications.
  - GDP coefficient signs vary: e.g., GDP = −0.027 (0.03) in fixed effects 1947–2018; GDP = 0.178*** (0.057) in random effects; GDP = −0.122** (0.051) in Arellano-Bond.
  - GDP positive and significant only in random effects, suggesting GDP share may be a poor proxy for global reach.
- Time variation:
  - Inertia and credibility effects may have been more important in the earlier period (1947–98).

### Robustness checks: trade, financial reach, and geopolitics (aggregate)
- Alternative measures of global reach:
  - Trade prominence measures (Export Share, Export Centrality) have estimated coefficients that are positive but not significant at the 5 percent level (Annex Table 2).
    - Example coefficients: Export Share = 3.806 (3.461); Export Centrality = 0.126 (0.255).
  - Financial measures:
    - FX Turnover coefficient: −0.027 (0.035) (not significant).
    - Debt Securities (currency share of long-term external debt of low- and middle-income countries) significant: 0.037*** (0.009) in Annex Table 2, column 5.
    - Bank Claims coefficient: −0.054** (0.013) in Annex Table 2, column 6.
  - Interpretation: weak evidence that prominence in global trade networks matters; some role for the currency denomination of external debt of low- and middle-income countries.
- Geopolitical measures:
  - Four measures tested: GDP per capita relative to average of reserve issuers; UN voting agreement share; ODA as share of GDP; military spending as share of total military spending by reserve issuers.
  - No evidence that geopolitical factors have driven aggregate reserve shares once other factors are controlled for (Annex Table 3).
    - Example coefficients: GDP per capita = −0.040 (0.035); UN Votes = −0.001 (0.011); ODA = 0.791 (0.817); Military Spending = −0.085** (0.029).
  - Example noted pattern: the proportion of countries voting in line with the United States has fallen sharply while the dollar’s share of reserves has been resilient.

### Disaggregated data (country-level, 1999–2018) — empirical specification
- Panel: 42 economies, 1999–2018, reserve holdings in four main reserve currencies (US dollar, euro, Japanese yen, British pound).
- Country-currency regression: Reserve Sharec,i,t = αc,i + δt + Reserve Sharec,i,t-1 + Trade Sharec,i,t + FX Alignmentc,i,t + Financial Linksc,i,t + εi,t
  - αc,i is a country-currency random/fixed effect
  - δt is a time fixed effect
  - Trade Sharec,i is country c’s share of trade with reserve issuer i (proxy for transactional demand)
  - FX Alignmentc,i is exchange rate comovement with reserve currency i (Ilzetzki, Reinhart, and Rogoff (2019))
  - Financial Linksc,i is either the share of public debt or cross-border bank claims denominated in currency i
- Estimation:
  - Baseline uses country-currency and year fixed effects (Hausman test rejects random effects).
  - Tobit model (fractional nature of dependent variable) provides qualitatively similar results.
  - Separate estimations for AEs (10) and EMDEs (32) due to differing drivers and data availability.

### Disaggregated results
- Inertia:
  - Lagged reserve share coefficients smaller than aggregate: range of 0.6–0.7 for EMDEs and 0.7–0.8 for AEs.
- Financial considerations:
  - Currency denomination of public debt (EMDEs) and cross-border bank claims (AEs) are statistically significant.
  - Magnitude: a 10 percent increase in the share of a given currency denomination in public debt or bank claims is associated with about 1 percentage points increase in that currency’s reserve share.
- Trade links and FX alignment:
  - Measures of trade links and exchange rate comovement are not statistically significant determinants of reserve currency shares.
- Time variation:
  - The importance of financial considerations has increased since the GFC.
  - Currency denomination of public debt is a significant determinant of reserve holdings in EMDEs in all regions except [text truncated in source].

*Source: IMF staff calculations (Annex 1 text).*

### Annex Table 4. Econometric Specifications

### Annex Table 4. Econometric Specifications

### Main econometric results (summary of coefficient estimates)
- Lagged Reserve Share:
  - Fixed Effects EMDE (column 1): 0.68*** (0.02)
  - Fixed Effects AE (column 2): 0.79*** (0.06)
  - Random Effects EMDE (column 3): 0.88*** (0.02)
  - Random Effects AE (column 4): 0.97*** (0.01)
  - Arellano-Bond EMDE (column 5): 0.57*** (0.05)
  - Arellano-Bond AE (column 6): 0.70*** (0.11)
  - Tobit EMDE (column 7): 0.68*** (0.03)
  - Tobit AE (column 8): 0.80*** (0.04)
- Trade Share:
  - Fixed Effects EMDE (1): 20.08 (0.10)
  - Fixed Effects AE (2): 0.09 (0.13)
  - Random Effects EMDE (3): 0.05*** (0.02)
  - Random Effects AE (4): 20.02 (0.03)
  - Arellano-Bond EMDE (5): 20.23 (0.16)
  - Arellano-Bond AE (6): 0.02 (0.19)
  - Tobit EMDE (7): 20.08 (0.10)
  - Tobit AE (8): 0.08 (0.07)
- FX Alignment:
  - Fixed Effects EMDE (1): 20.06*** (0.01)
  - Fixed Effects AE (2): 0.06*** (0.01)
  - Random Effects EMDE (3): 0.01 (0.01)
  - Random Effects AE (4): 20.08 (0.06)
  - Arellano-Bond EMDE (5): 0.00 (0.00)
  - Arellano-Bond AE (6): 20.06** (0.03)
  - Tobit EMDE (7): 20.03 (0.03)
  - Tobit AE (8): (no coefficient reported)
- Debt Share:
  - Fixed Effects EMDE (1): 0.10*** (0.04)
  - Fixed Effects AE (2): 0.03** (0.02)
  - Random Effects EMDE (3): 0.16*** (0.06)
  - Random Effects AE (4): 0.10*** (0.03)
  - (Not reported in Arellano-Bond columns in the table excerpt)
- Bank Claims Share:
  - Fixed Effects EMDE (1): 0.08*** (0.03)
  - Fixed Effects AE (2): 0.03** (0.01)
  - Random Effects EMDE (3): 0.05* (0.03)
  - Random Effects AE (4): 0.08 (0.05)
- Observations by specification:
  - Fixed Effects EMDE (1): 1,585
  - Fixed Effects AE (2): 417
  - Random Effects EMDE (3): 1,585
  - Random Effects AE (4): 417
  - Arellano-Bond EMDE (5): 1,450
  - Arellano-Bond AE (6): 385
  - Tobit EMDE (7): 1,585
  - Tobit AE (8): 417
- Hausman Test (p-value): 0.00 0.00
- Note: Robust standard errors in parentheses. ***, **, * indicates significance at the 1%, 5%, and 10% levels, respectively. All specifications include time and country-currency fixed (random) effects.

### Interpretation embedded in source text
- Inertia (persistence) in reserve shares is strong and statistically significant across specifications (high and significant coefficients on Lagged Reserve Share).
- Trade Share and FX Alignment coefficients vary in sign and significance across specifications and country groups (EMDE vs AE), indicating heterogeneity in the role of trade links and exchange rate alignment.
- Debt Share and Bank Claims Share generally display positive coefficients, with statistical significance varying by specification and country group.

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### Annex Table 5. Alternative Region and Time Periods (heterogeneity by period and region)

### Lagged Reserve Share (regional/time variations)
- EMDE 1999–2007 (column 1): 0.47*** (0.06)
- EMDE 2008–2018 (column 2): 0.68*** (0.03)
- EMDE Africa (3): 0.60*** (0.06)
- EMDE Middle East (4): 0.70*** (0.05)
- EMDE Asia and Pacific (5): 0.69*** (0.09)
- EMDE Europe (6): 0.65*** (0.04)
- EMDE Americas (7): 0.64*** (0.06)
- AE 1999–2007 (8): 0.63*** (0.03)
- AE 2008–2018 (9): 0.69*** (0.04)
- AE Europe (10): 0.78*** (0.08)
- AE Americas (11): 0.83*** (0.08)

### Trade Share (regional/time variations)
- EMDE 1999–2007 (1): 20.28 (0.20)
- EMDE 2008–2018 (2): 20.10 (0.13)
- EMDE Africa (3): 0.48** (0.19)
- EMDE Middle East (4): 20.50*** (0.13)
- EMDE Asia and Pacific (5): 0.03 (0.33)
- EMDE Europe (6): 0.03 (0.23)
- EMDE Americas (7): 0.16 (0.10)
- AE 1999–2007 (8): 0.06 (0.29)
- AE 2008–2018 (9): 0.24*** (0.07)
- AE Europe (10): 0.21*** (0.05)
- AE Americas (11): 20.57** (0.19)

### FX Alignment and other variables
- FX Alignment reported negative and significant in some columns (e.g., EMDE 1999–2007: 20.03*** (0.01); EMDE 2008–2018: 20.08*** (0.01))
- Debt Share examples:
  - EMDE Africa (3): 0.13 (0.10)
  - EMDE Middle East (4): 0.15*** (0.06)
  - EMDE Asia and Pacific (5): 0.35*** (0.12)
  - AE Americas (11): 0.10*** (0.05)
- Bank Claims Share:
  - EMDE 1999–2007 (1): 20.05 (0.15)
  - EMDE 2008–2018 (2): 0.09*** (0.03)
  - EMDE Africa (3): 0.07*** (0.02)
  - AE Europe (10): 20.05 (0.12)

### Goodness of fit and sample sizes
- Observations (by column): 369, 1,216, 379, 334, 152, 436, 284, 124, 293, 316, 85
- R-squared (by column): 0.28, 0.50, 0.57, 0.52, 0.53, 0.55, 0.55, 0.54, 0.57, 0.69, 0.78

### Interpretation embedded in source text
- After the GFC, inertia effects became stronger for both EMDEs and AEs, with inertia for EMDEs converging with AEs in magnitude.
- Inertia effects are largest among AEs in the Americas and generally larger in AEs compared to EMDEs across regions.
- Trade links became more important for AEs since the GFC, notably for European countries given trade links with Euro area economies.

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### Annex Table 6. Robustness Checks: alternative measures and interactions

### Key coefficients (selected columns)
- Lagged Reserve Share:
  - Imports Share EMDE (1): 0.68*** (0.02)
  - Imports Share AE (2): 0.79*** (0.06)
  - Invoicing Share EMDE (3): 0.68*** (0.03)
  - Invoicing Share AE (4): 0.51*** (0.08)
  - Total reserves (interaction) (5): 0.68*** (0.02)
  - De jure Peg (6): 0.69*** (0.02)
- Trade Share / Imports / Invoicing:
  - Imports Share EMDE (1): 0.04 (0.07)
  - Imports Share AE (2): 0.09 (0.09)
  - Invoicing Share EMDE (3): 20.07 (0.08)
  - Invoicing Share AE (4): 20.05 (0.32)
  - Trade Share * Log Reserves (column 5): 20.06** (0.02)
  - De jure Peg (6) Trade Share: 20.08 (0.10)
- FX Alignment:
  - Imports Share EMDE (1): 20.06*** (0.01)
  - Imports Share AE (2): 20.07*** (0.01)
  - Invoicing Share EMDE (3): 20.06*** (0.01)
  - Invoicing Share AE (4) (de jure peg used): 0.00 (0.01)
- Debt Share and Bank Claims Share:
  - Debt Share EMDE (1): 0.10*** (0.03)
  - Debt Share AE (2): 0.05* (0.03)
  - Invoicing Share EMDE (3) Debt Share: 0.12*** (0.04)
  - Invoicing Share AE (4) Debt Share: 0.11*** (0.04)
  - Bank Claims Share EMDE (1): 0.08*** (0.03)
  - Bank Claims Share AE (2): 0.08 (0.05)

### Observations and fit
- Observations by column: 1,585; 417; 380; 104; 1,585; 1,585
- R-squared by column: 0.52; 0.69; 0.57; 0.53; 0.53; 0.52

### Interpretation embedded in source text
- Alternative measures of trade links (share of imports, share in imports invoicing) and exchange rate comovement do not change main results.
- When share of trade is replaced by share of imports, the coefficient on trade links becomes positive but remains statistically insignificant.
- When trade shares are replaced with invoicing shares, coefficients remain imprecisely measured, possibly due to little variability in invoicing shares over time and collinearity with fixed effects.
- Trade links are a significant determinant of reserve shares in EMDEs with lower levels of total reserves, becoming less important as reserve levels rise (interaction: Trade Share * Log Reserves = 20.06** (0.02) in column 5).
- Using de jure peg as the anchoring measure restricts sample to EMDEs; de facto anchoring measure by Ilzetzki, Reinhart, and Rogoff (2019) may misclassify some floating rates as anchored.

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### Annex Table 7. Alternative Geopolitical Measures

### Variables and coefficients (selected)
- Lagged Reserve Share:
  - EMDE (UN Voting column 1): 0.54*** (0.05)
  - AE (UN Voting column 2): 0.74*** (0.09)
  - EMDE (ODA column 3): 0.68*** (0.02)
  - EMDE (Arms Imports column 4): 0.67*** (0.02)
  - AE (Arms Imports column 5): 0.78*** (0.06)
- Trade Share (examples):
  - EMDE (UN Voting 1): 20.02 (0.11)
  - AE (UN Voting 2): 0.13 (0.09)
  - EMDE (ODA 3): 20.06 (0.10)
  - EMDE (Arms 4): 20.08 (0.09)
  - AE (Arms 5): 0.11 (0.13)
- FX Alignment:
  - EMDE (UN Voting 1): 20.10*** (0.01)
  - AE (UN Voting 2): 20.06*** (0.01)
  - EMDE (ODA 3): 20.05*** (0.01)
- Debt Share:
  - EMDE (UN Voting 1): 0.12*** (0.04)
  - AE (UN Voting 2): 0.11*** (0.03)
  - EMDE (ODA 3): 0.10*** (0.03)
- UN Votes (where included):
  - EMDE (ODA column 3): 0.06 (0.04)
  - AE (UN Voting column 2): 0.17*** (0.06)
- ODA Share (EMDE column 3): 20.03** (0.01)
- Share in Arms Imports (EMDE column 4): 0.04*** (0.02)

### Observations and fit
- Observations by column: 1,102; 288; 1,585; 1,585; 417
- R-squared by column: 0.35; 0.62; 0.53; 0.53; 0.69

### Interpretation embedded in source text
- Geopolitical measures deliver mixed results.
- Three geopolitical measures considered: share of UN votes cast the same way as the reserve issuer; share of ODA received from a given reserve issuer (EMDEs only); and share of imports of arms and ammunition from a given reserve issuer.
- Only UN votes in AEs and the share of arms imports from reserve issuers in EMDEs are positively associated with reserve currency shares.

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### Annex Table 8. List of Economies (sample coverage)
- Sample includes economies with listed country-years and country group classification (examples from source):
  - Azerbaijan 1999–2018 EMDE
  - Bangladesh 2005–18 EMDE
  - Bolivia 2008–18 EMDE
  - Bosnia and Herzegovina 2001–18 EMDE
  - Brazil 2002–18 EMDE
  - Bulgaria 2000–18 EMDE
  - Canada 1999–2018 AE
  - Colombia 2007–18 EMDE
  - Costa Rica 2011–18 EMDE
  - Denmark 1999–2018 AE
  - Finland 2001–18 AE
  - Georgia 1999–2018 EMDE
  - Germany 2000–18 AE
  - Ghana 2003–18 EMDE
  - Hong Kong SAR 1999–2018 AE
  - Kazakhstan 1999–2018 EMDE
  - Kenya 2001–18 EMDE
  - Korea 2007–18 AE
  - Kyrgyz Republic 2003–18 EMDE
  - Malawi 2008–18 EMDE
  - Moldova 2011–18 EMDE
  - Nigeria 2011–15 EMDE
  - North Macedonia 2001–18 EMDE
  - Norway 1999–2018 AE
  - Papua New Guinea 2005–18 EMDE
  - Paraguay 2002–18 EMDE
  - Peru 2000–18 EMDE
  - Philippines 2005–18 EMDE
  - Romania 2001–18 EMDE
  - Russia 2007–18 EMDE
  - Serbia 2005–18 EMDE
  - South Africa 2005–18 EMDE
  - Sweden 2006–18 AE
  - Switzerland 1999–2018 AE
  - Tajikistan 2008–18 EMDE
  - Tanzania 2003–18 EMDE
  - Tunisia 2009–18 EMDE
  - Turkey 2004–18 EMDE
  - Uganda 2006–18 EMDE
  - Ukraine 2001–18 EMDE
  - United States 1999–2018 AE
  - Zambia 2004–18 EMDE
- Source column in table lists central bank or official source for reserve currency shares for each country.

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*Source: Authors’ calculations, Annex Tables 4–8 (Econometric specifications, regional/time heterogeneity, robustness checks, geopolitical measures, and sample list) from the provided document.*

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_Source: https://www.imf.org/-/media/files/publications/dp/2020/english/rceimsea.pdf_